Publication Type

Journal Article

Version

publishedVersion

Publication Date

4-2016

Abstract

This paper proposes a framework of endogenous energy production with convex costs to investigate the general equilibrium effects of energy price shocks on the business cycle. This framework explicitly models the consumption of durables and nondurables and implements a high complementarity between energy and the usage of durables and capital. The model predicts energy price elasticities of various consumption variables that fall within reasonable agreement with empirical estimates. Convex costs in energy production produce energy price and energy supply dynamics that tallies well with empirical behavior. Our analysis confirms in a theoretical setting recent observations that not all energy price shocks are the same. They can be distinct in terms of energy price dynamics and impact on the business cycle, as well as energy price elasticities of various macro variables that can be useful indicators for their underlying causes.

Keywords

Energy, Energy price shock, Business cycle

Discipline

Industrial Organization | International Economics | Macroeconomics

Research Areas

International Economics

Publication

Macroeconomic Dynamics

Volume

20

Issue

3

First Page

623

Last Page

642C

ISSN

1365-1005

Identifier

10.1017/S1365100514000455

Publisher

Cambridge University Press

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1017/S1365100514000455

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