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Abstract

Our objective is to study the dynamic effects of an oil price shock on economic keyvariables and on the current account of a small open economy. To do this, we introduce timenon-separable preferences in a standard model of a small open economy, where labor supplyis endogenous and imported oil is used both as an intermediate input in production and as aconsumption good. Using a plausible calibration of the model, we show that the changes inoutput and employment are quite small, and that the current account exhibits the J-curveproperty, both being in line with recent empirical evidence. After an oil price increase, thecurrent account first deteriorates, and after some time it turns into surplus. We explain thisnon-monotonic behavior with agents- reluctance to change their consumption expenditures,resulting in an initial trade balance deficit which causes the current account to deteriorate.Over time, with gradually falling expenditures, the trade balance improves sufficiently toturn the current account into surplus. The model thus provides a plausible explanation ofrecent empirical findings.



Item Type: MPRA Paper -

Original Title: Dynamic Effects of Oil Price Shocks and their Impact on the Current Account-

Language: English-

Keywords: oil price shocks; time non-separable preferences; current account dynamics-

Subjects: F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital MovementsF - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy MacroeconomicsQ - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy-





Autor: Schubert, Stefan Franz

Fuente: https://mpra.ub.uni-muenchen.de/16738/







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