Understanding the impact of oil shocks
By: by Luís Aguiar-Conraria and Yi Wen.
Contributors: Wen, Yi.
Series: Working paper ;; 2005-042A; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2005-042A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2005
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Petroleum products -- Prices.; Economic policy.
Description: "This paper provides new empirical evidence on and theoretical support for the close link between oil prices and aggregate macroeconomic performance in the 1970s.  Although this link has been well documented in the empirical literature and is further confirmed in this paper, standard economic models are not able to replicate this link when actual oil prices are used to simulate the models.  In particular, standard models cannot explain the depth of the recession in 1974-75 and the strong revival in 1976-78 based on the oil price movements in that period.  This paper argues that a missing multiplier-accelerator mechanism from standard models may hold the key.  This multiplier-accelerator mechanism not only exacerbated the impact of the oil shocks in 1973-74 but also helped create the temporary recovery in 1976-78.  This paper derives the missing multiplier-accelerator mechanism from externalities in general equilibrium.  Our calibrated model can explain both the recession in 1974-75 and the revival in 1976-78"--Federal Reserve Bank of St. Louis web site.
Notes: Includes bibliographical references.
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Mode of access: World Wide Web.