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Oil and the World Economy

Authors : Mr. Michael Kumhof, Dirk Muir
Publisher : International Monetary Fund
Published Date : 2012-10-25
ISBN-13 : 9781475539974
Page : 31 Pages
Language : en


Descriptions Oil and the World Economy

This paper, using a six-region DSGE model of the world economy, assesses the GDP and current account implications of permanent oil supply shocks hitting the world economy at an unspecified future date. For modest-sized shocks and conventional production technologies the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, GDP growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

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