Title: The Relationship Between Oil Price Shocks and Macroeconomic Aggregates
Abstract: In 1973 and 1979, two oil crises occurred in the international market for crude oil. These oil crises had significant effects on oil-importing countries. Oil is the most important natural energy resource. It is not only a necessary factor in economic development, but is also a strategic material for the safety of a country. Thus, studying the relationship between oil price shocks and economic activity is an important subject in empirical literature. In general, two themes are explored with regard to this subject, namely, the effects of oil price shocks on real economic activity and the factors contributing to oil price changes. Oil price shocks almost always impose negative effects on real economic activity. These negative effects include inflation, recession, and high unemployment. A recent finding showed that these effects are significantly weaker after 2000 than in the 1970s and 1980s. Thus, economists attempt to clarify the transmission mechanisms of oil price shocks in the economic system and to recommend appropriate monetary policies to reduce such effects. In Chapters 2 and 3, a Dynamic Stochastic General Equilibrium model and a structural Vector Autoregression model are respectively constructed to confirm the effects of oil price shocks on the Japanese economy. Chapter 2 discusses an economic system where there are two types of firms in the economy: one type produces intermediate goods and the other produces unique final good. Each intermediate good is produced with capital, labour, and crude oil. The unique final good is produced only by intermediate goods. The primary findings of this chapter are the substitution effects between capital, labour, and oil. We also determine two important changes that have emerged in the last two oil price shocks after the 1980s, that is, the quantity and volatility of oil price shocks have changed across periods. In Chapter 3, according to the variables in the Vector Autoregression model, the effects of oil price shocks on the Japanese economy are analysed using four steps. Step 1 merely
Publication Year: 2012
Publication Date: 2012-01-01
Language: en
Type: article
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