Resource title

Why are the effects of recent oil price shocks so small?

Resource image

image for OpenScout resource :: Why are the effects of recent oil price shocks so small?

Resource description

Recent oil price shocks have relatively small effects on real economic activity and inflation compared to the experiences of the seventies and the early eighties. In this paper we analyse possible reasons for these phenomena using the example of the German economy. At first, by estimating a VAR-model and calculating impulse responses to an oil price shock it is confirmed that the macroeconomic effects have become much smaller. Moreover, our simulations show that oil price hikes are more closely related to global economic activity since the early nineties.Then, to get a deeper understanding of the structural changes which are responsible for these results we utilize a new Keynesian open economy model. It becomes obvious that the small effects of the recent oil price shocks on the German economy can be explained by a combination of a reduced energy cost share and good luck in terms of a strong growing global economy. Hence, if global economic growth decreases, pure oil price shocks may still have substantial effects on the German economy, even if the energy pricevulnerability has been reduced.These results should be valid also for other oil importing countries, at least from a qualitative point of view.

Resource author

Torsten Schmidt, Tobias Zimmermann

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26794

Resource license

Adapt according to the presented license agreement and reference the original author.