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Oil and the World Economy: Some Possible Futures
Author: Mr. Michael Kumhof and Mr. Dirk V Muir
Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 256
Language:
English
Publication Date:
25 Oct 2012
DOI:
https://doi.org/10.5089/9781475586640.001
ISBN:
9781475586640
ISSN:
1018-5941
Pages:
31
Keywords:
WP; current account; real interest rate; supply shock; production function; Exhaustible resources; fossil fuels; oil depletion; Hubbert’s Peak; externalities; oil price; price elasticity; elasticity of oil demand; demand and supply; Oil; Oil prices; Price elasticity; Demand elasticity; Oil production; Global; Asia and Pacific
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund