Working Paper: NBER ID: w0582
Authors: Jeffrey Sachs
Abstract: This paper offers a theoretical framework for studying the inter-actions of energy prices and economic growth. The incorporation of energy prices and quantities in a macroeconomic setting focuses on (1)the aggregate technology; (2) the interdependence of energy producers and consumers in the world economy; and (3) the asset markets as the channel through which energy price changes affect output and capital accumulation. While several existing studies consider aspects of these issues, none provides a synthesis. In this analysis, a theoretically sound model of an oil price increase in the world economy is presented, carefully treating topics (1) - (3).The model is solved with computer simulation, as it is far too complex to yield analytical solutions.
Keywords: Energy prices; Economic growth; Flexible exchange rates; Macroeconomic modeling
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher energy prices (Q41) | Short-run decline in production (E23) |
| Short-run decline in production (E23) | Long-run capital accumulation (E22) |
| Higher energy prices (Q41) | Investment decisions of firms (G31) |
| Investment decisions of firms (G31) | Long-run capital accumulation (E22) |
| Higher energy prices (Q41) | Tobin's q (G19) |
| Tobin's q (G19) | Investment rates (G31) |
| Investment rates (G31) | Long-run capital accumulation (E22) |
| Transmission of policies across national boundaries (F42) | Beggar-thy-neighbor effects (F69) |