Oil and the World Economy : Some Possible Futures

Author/Editor:

Michael Kumhof ; Dirk V Muir

Publication Date:

October 25, 2012

Electronic Access:

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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.

Series:

Working Paper No. 12/256

Subject:

Demand Economic models Exhaustible resources External shocks Fossil fuels Oil depletion Oil prices Oil production Price elasticity Supply

English

Publication Date:

October 25, 2012

ISBN/ISSN:

9781475586640/1018-5941

Stock No:

WPIEA2012256

Format:

Paper

Pages:

31

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