IMF Working Papers

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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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