Oil and the World Economy: Some Possible Futures

October 25, 2012

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Format: Chicago

Michael Kumhof, and Dirk V Muir. Oil and the World Economy: Some Possible Futures, (USA: International Monetary Fund, 2012) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Commodities, Demand elasticity, Economic theory, Oil, Oil prices, Oil production, Price elasticity, Prices, Production

Keywords: Asia and Pacific, Current account, Demand and supply, Demand elasticity, Elasticity of oil demand, Exhaustible resources, Externalities, Fossil fuels, Global, Hubbert’s Peak, Oil, Oil depletion, Oil price, Oil prices, Oil production, Price elasticity, Price elasticity, Production function, Real interest rate, Supply shock, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/256
Stock No:

WPIEA2012256
ISBN:

9781475586640
ISSN:

1018-5941

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