International Business Cycles: Quantifying the Effects of a World Market for Oil

Riksbank Research Paper Series No. 164

Sveriges Riksbank Working Paper Series No. 340

44 Pages Posted: 26 Jan 2018

See all articles by Johan Gars

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics

Conny Olovsson

Sveriges Riksbank

Date Written: May 2017

Abstract

To what extent is the international business cycle affected by the fact that an essential input (oil) is traded on the world market? We quantify the contribution of oil by setting up a model with separate shocks to efficiencies of capital/labor and oil, as well as global shocks to the oil supply. We find that the shocks to the supply and the efficiency of oil both contribute to positive comovements. These two shocks are also relatively transitory, which induces high responses in output and low responses in consumption. As a consequence, the model resolves both the consumption correlation puzzle and the international comovement puzzle.

Keywords: International comovements, business cycles, oil, productivity

JEL Classification: E32, F32, F41, Q43

Suggested Citation

Gars, Johan and Olovsson, Conny, International Business Cycles: Quantifying the Effects of a World Market for Oil (May 2017). Riksbank Research Paper Series No. 164, Sveriges Riksbank Working Paper Series No. 340, Available at SSRN: https://ssrn.com/abstract=2997019 or http://dx.doi.org/10.2139/ssrn.2997019

Johan Gars

The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics ( email )

The Royal Swedish Academy of Sciences
P.O. Box 50005
S-104 05 Stockholm, SE-104 05
United States

Conny Olovsson (Contact Author)

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

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