the effects of oil price shocks in a new keynesian framework with capital accumulation the economic implications of oil price shocks have been extensively studied since the 1970s despite this huge literature no dynamic stochastic general equilibrium model was available that captures two well known stylized facts 1 the stagflationary impact of an oil price shock together with 2 the influence of the energy productivity of capital on the depth and length of this impact we build estimate and simulate a new keynesian model with capital accumulation which takes the case of an economy where oil is imported from abroad and where these stylized facts can be accounted for moreover the bayesian estimation of the model on the us economy 1984 2007 suggests that the output elasticity of oil might have been above 10 stressing the role of oil use in us growth at this time finally our simulations confirm that an increase in energy efficiency significantly attenuates the effects of an oil shock a possible explanation of why the third oil shock 1999 2008 did not have the same macro economic impact as the first two ones

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

the evolving impact of global region specific and country specific uncertainty we develop a dynamic factor model with time varying parameters and stochastic volatility estimate it using a large panel of macroeconomic and financial data for 22 countries and decompose the vari

oil prices and the global economy a general equilibrium analysis a global computable general equilibrium model is used to analyze the economic impacts of rising oil prices with endogenously determined availability of biofuels to mitigate those impacts the negative effects on the global economy are comparable to those found in other studies but the impacts are unevenly distributed across countries regions or sectors the agricultural sectors of high income countries which are relatively energy intensive will suffer more from a rising oil prices than that in lower income countries whereas the reverse is true for the impacts across manufacturing sectors the impacts are especially strong for oil importers with relatively energy intensive manufacturing and trade such as india and china while the availability of biofuels does mitigate some of the negative impacts of rising oil prices the benefit is small because capacity of biofuels to economically substitute for fossil fuels on a large scale remains limited

the time varying effect of oil price shocks on euro area exports abstract in this paper we provide novel evidence on changes in the relationship between the real price of oil and real exports in the euro area by combining robust predictions on the sign of the impulse responses obtained from a theoretical model with restrictions on the slope of the oil demand and oil supply curves we identify oil supply and foreign productivity shocks in a time varying var with stochastic volatility we find that from the 1980s onwards the relationship between oil prices and euro area exports has become less negative conditional on oil supply shortfalls and more positive conditional on foreign productivity shocks using the theoretical model we show that our empirical findings can be accounted for by i stronger trade relationship between the euro area and emerging economies ii a decrease in the share of oil in production and iii increased competitive pressures in the product market

real wage rigidities and the new keynesian model most central banks perceive a trade off between stabilizing inflation and stabilizing the gap between output and desired output however the standard new keynesian framework implies no such trade off in that framework stabilizing inflation is equivalent to stabilizing the welfare relevant output gap in this paper we argue that this property of the new keynesian framework which we call the divine coincidence is due to a special feature of the model the absence of nontrivial real imperfections we focus on one such real imperfection namely real wage rigidities when the baseline new keynesian model is extended to allow for real wage rigidities the divine coincidence disappears and central banks indeed face a trade off between stabilizing inflation and stabilizing the welfare relevant output gap we show that not only does the extended model have more realistic normative implications but it also has appealing positive properties in particular it provides a natural interpretation for the dynamic inflation unemployment relation found in the data

time varying effect of oil market shocks on the stock market abstract a mixture innovation time varying parameter var model is used to examine the impact of structural oil price shocks on u s stock market return time variation is evident in both the coefficients and the variance covariance matrix the standard deviations of the demand side structural shocks reached forty year peaks during the global financial crisis and have remained high since in the real stock return equation the coefficient of global real economic activity has declined since the late 1990s and that of oil market specific demand oil shock has been lower since the early 1990s than before the structural oil shocks account for 25 7 of the long run variation in real stock returns overall with substantial change in levels and sources of contribution over time the contribution of shocks to global real economic activity to real stock return variation rose sharply to 22 in 2009 and remains 17 over 2009 2012 the contribution of oil market specific demand price shocks rose unevenly from 5 in the mid 1970s to about 15 in 2007 with a subsequent decline the contribution of oil supply shocks has trended downward from 17 to 5 over 1973 2012

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

impacts of oil price shocks on the united states economy a meta analysis of the oil price elasticity of gdp for net oil importing economies policy makers are interested in estimates of the potential economic impacts of oil price shocks particularly during periods of rapid and large increases that accompany severe supply shocks literature estimates of the economic impacts of oil price shocks summarized by the oil price elasticity of gdp span a very wide range due to both fundamental economic and methodological factors this paper presents a quantitative meta analysis of the oil price elasticity of gdp for net oil importing countries with a focus on the united states us the full range of estimates of the oil price elasticity of gdp for the us in the data is 0 124 to 0 017 accounting for different methodologies data and other factors we employ a meta regression model that controls for key determinant factors to estimate the mean and variance of the gdp elasticity across studies we use a robust estimation technique to deal with heterogeneity of the data and well known econometric issues that confront meta analysis the resulting regression model is used to simulate the oil price elasticity of gdp for the us with a mean of 0 020 and 68 confidence interval of 0 035 to 0 006 four quarters after a shock

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

accounting for the declining economic effects of oil price shocks abstract many studies have concluded that the effects of oil price shocks have diminished since the mid 1980s this paper revisits the evidence in blanchard and gali 2010 i show that the apparent instability in the oil price macroeconomy relationship they find can be accounted for by the endogeneity of oil price changes and the lower energy share in consumption in recent decades when these two factors are taken into account the effects of oil price shocks on real economic activity appear to be stable over time nevertheless the impact of oil prices on inflation has noticeably weakened

the dynamic effects of oil supply shocks on the us stock market returns of upstream oil and gas companies abstract a time varying parameter var model is used to examine the impact of structural oil supply shocks on the us real stock market return of oil and gas exploration and production companies the result shows that the impact response of the real return of the upstream stocks to a negative world non us oil supply shock increases substantially over recent years from an average value of 0 70 in 2006 to 6 16 during 2008 2010 with a spike of 6 81 in 2014q3 the endogenous effects of us oil supply shocks on the return play an important role in that the responses of the stock returns to a negative us oil supply shock are positive and persistent with an average value of 3 60 over time the time varying effects of oil supply shocks are heterogeneous the magnitudes of return responses are different among independents large proved reserve independents and integrated companies over time

rice in asia is it becoming an inferior good empirical results using time series and cross sectional data indicate that rice in asia is becoming an inferior good income elasticities declined and in some cases became negative between 1961 and 1985 in most of the fourteen asian countries studied accordingly domestic demand for rice in these countries is not likely to grow as rapidly as it has in the past as a consequence there is a potential for excess supplies of rice to develop in asia putting downward pressure on rice prices while governments in asian countries may need to adjust their rice policies in the future world rice suppliers may need to develop new markets for rice

real price and wage rigidities with matching frictions abstract frictional unemployment means that workers for some time are a firm specific factor of production this paper models the resulting interaction of wage bargaining and price setting at the firm level in a new keynesian model with labor market matching frictions real rigidities arise and the labor share ceases to be a good proxy for marginal costs the model replicates the impulse responses of an svar for u s data better than alternatives in which the real rigidities arising at the firm level are absent in addition it implies reasonably low degrees of nominal rigidity whereas the alternatives do not the interaction of wage and price setting at the firm level is important for the macroeconomic dynamics

why are the 2000s so different from the 1970s a structural interpretation of changes in the macroeconomic effects of oil prices in the 1970s large increases in the price of oil were associated with sharp decreases in output and large increases in inflation in the 2000s even larger increases in the price of oil were associated with much milder movements in output and inflation using a structural var approach blanchard and gali in j gali and m gertler eds 2009 international dimensions of monetary policy university of chicago press pp 373 428 argued that this reflected a change in the causal relation from the price of oil to output and inflation they then argued that this change could be due to a combination of three factors a smaller share of oil in production and consumption lower real wage rigidity and better monetary policy their argument based on simulations of a simple new keynesian model was informal our purpose in this paper is to take the next step and to estimate the explanatory power and contribution of each of these factors to do so we use a minimum distance estimator that minimizes over the set of structural parameters and for each of two samples pre and post 1984 the distance between the empirical svar based impulse response functions and those implied by a new keynesian model our empirical results point to an important role for all three factors

does inflation targeting anchor long run inflation expectations evidence from the u s uk and sweden we investigate the extent to which inflation expectations have been more firmly anchored in the united kingdom a country with an explicit inflation target than in the united states a country with no such target using the difference between far ahead forward rates on nominal and inflation indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons we show that far ahead forward inflation compensation in the u s exhibits substantial volatility especially at low frequencies and displays a highly significant degree of sensitivity to economic news similar patterns are evident in the uk prior to 1997 when the bank of england was not independent but have been strikingly absent since the bank of england gained independence in 1997 our findings are further supported by comparisons of dispersion in longer run inflation expectations of professional forecasters and by evidence from sweden another inflation targeting country with a relatively long history of inflation indexed bonds our results support the view that an explicit and credible inflation target helps to anchor the private sector s views regarding the distribution of long run inflation outcomes jel e31 e52 e58

from oil to consumer energy prices how much asymmetry along the way abstract a longstanding question in macroeconomics is whether fuel prices react more to increases than to decreases of the price of oil this paper analyzes the response of weekly gasoline and gasoil prices to oil prices in the u s the euro area and the four largest euro area countries germany france italy and spain using nonlinear impulse response functions and forecast accuracy tests while for the u s both approaches point to the presence of asymmetries in the adjustment of retail prices for the euro area the evidence is mixed

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

optimal interest rate smoothing this paper considers the desirability of the observed tendency of central banks to adjust interest rates only gradually in response to changes in economic conditions it shows in the context of a simple model of optimizing private sector behaviour that assignment of an interest rate smoothing objective to the central bank may be desirable even when reduction of the magnitude of interest rate changes is not a social objective in itself this is because a response of policy to irrelevant lagged variables may be desirable owing to the way it steers private sector expectations of future policy

imperfect credibility and inflation persistence in this paper we formulate a dynamic general equilibrium model with staggered nominal contracts in which households and rms use optimal ltering to disentangle persistent and transitory shifts in the monetary policy rule the calibrated model accounts quite well for the dynamics of output and insation during the volcker disinsation and implies a sacri ce ratio very close to the estimated value our approach indicates that insation persistence and substantial costs of disinsation can be generated in an optimizing agent framework without relaxing the assumption of rational expectations or relying on arbitrary modi cations to the aggregate supply relation jel classi cation e31 e32 e52

has monetary policy become more effective we investigate the implications of changes in the structure of the u s economy for monetary policy effectiveness estimating a vector autoregression over the pre and post 1980 periods we provide evidence of a reduced effect of monetary policy shocks in the latter period we estimate a structural model that replicates well the economy s response in both periods and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy s volatility we find that by responding more strongly to inflation expectations monetary policy has stabilized the economy more effectively in the post 1980 period

large time varying parameter vars a nonparametric approach in this paper we introduce a non parametric estimation method for a large vector autoregression var with time varying parameters the estimators and their asymptotic distributions are available in closed form this makes the method computationally efficient and capable of handling information sets as large as those typically handled by factor models and factor augmented vars favar when applied to the problem of forecasting key macroeconomic variables the method outperforms constant parameter benchmarks and large parametric bayesian vars with time varying parameters the tool can also be used for structural analysis as an example we study the time varying effects of oil price innovations on sectoral u s industrial output we find that durable consumer goods and durable materials which together account for slightly more than one fifth of total industrial output play a key role in explaining the changing interaction between unexpected oil price increases and u s business cycle fluctuations

evolving u s monetary policy and the decline of inflation predictability based on a structural var with time varying parameters and stochastic volatility for the post wwii u s we document a negative correlation between the evolution of the long run coefficient on inflation in the structural monetary rule and the evolution of the persistence and predictability of inflation relative to a trend component using an estimated sticky price model we show that a more aggressive policy stance towards inflation causes a decline in inflation predictability jel e37 e52 e58

oil price uncertainty and u s employment growth abstract this paper studies the effects of oil price changes on u s aggregate and sectoral employment growth in the presence of time varying oil price uncertainty we estimate a bivariate garch in mean var model using u s monthly data of oil prices and employment growth for the period 1974 m2 2018 m11 based on the results we show that an increase in oil prices reduces total employment growth and that in most private sectors but the public sector is largely unaffected the effects on employment growth in various hub sectors are also different furthermore employment growths at both aggregate and disaggregate levels respond asymmetrically to positive and negative oil price shocks which could possibly be attributed to oil price uncertainty this asymmetric impact is more evident when the model is estimated on the entire sample than on the 1970s sample implying that the role of oil price uncertainty in accounting for variations in employment growth can differ over time these findings underline the empirical relevance of oil price uncertainty for the u s labor market dynamics

changes in the global oil market changes in the parameters of a recursively identified oil market model are examined through an iterative algorithm that tests for possible breaks in coefficients and variances the analysis detects breaks in the coefficients of the oil production and price equations together with volatility shifts in all three equations of the model coefficient changes imply an enhanced response of production to aggregate demand shocks after 1980 and that the price response to supply shocks is more persistent from the mid 1990s all variables evidence changes in the relative contributions of individual shocks to their forecast error variances with coefficient and volatility breaks in the first half of the 1990s being particularly important in this respect the results show that analysts of this market should eschew constant parameter models estimated over an extended period

monetary policy and indeterminacy after the 2001 slump abstract this paper estimates a simple new keynesian model of the u s economy allowing for indeterminacy over the period following the 2001 slump an episode for which the adequacy of monetary policy is intensely debated we find that only when measuring inflation with core pce does monetary policy appear to have been sufficiently active to rule out indeterminacy we then relax the assumption that inflation in the model is measured by a single indicator and re formulate the artificial economy as a factor model where the theory s concept of inflation is the common factor to the empirical inflation series cpi and pce provide better indicators of the latent concept while core pce is less informative finally we estimate an extended economy that distinguishes between core and headline inflation rates this model comfortably rules out indeterminacy and confirms the view that the federal reserve put more weight on core pce inflation when setting the policy rate during this period

industry effects of oil price shocks a re examination abstract sectoral responses to oil price shocks help determine how these shocks are transmitted throughout the economy textbook treatments of oil price shocks often emphasize negative supply or cost effects on oil importing countries by contrast the seminal contribution of lee and ni 2002 has shown that almost all u s industries experience oil price shocks largely through a reduction in their respective demands only industries with very high oil intensities face a supply driven reduction in this paper we re examine this seminal finding using two additional decades of data further we apply updated empirical methods including structural factor augmented vector autoregressions that take into account how industries are linked among themselves and with the remainder of the macro economy our results confirm the original finding of lee and ni that demand effects of oil price shocks dominate in all but a handful of u s industries

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model