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Energy Price Shocks and the Macroeconomy: The Role of Consumer Durables
Author(s) -
DHAWAN RAJEEV,
JESKE KARSTEN
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00163.x
Subject(s) - economics , investment (military) , monetary economics , durable good , capital (architecture) , productivity , production (economics) , capital good , energy (signal processing) , price shock , macroeconomics , microeconomics , economy , goods and services , history , statistics , mathematics , archaeology , politics , political science , law
We create a model with a distinction between investment in consumer durables and capital goods, as well as energy use by households and firms, to evaluate the importance of energy price shocks for output fluctuations. Simulation results indicate that this economy has a smaller proportion of output fluctuations attributable to energy price shocks than one without durable goods and household energy use. We show that an energy price hike is absorbed by reducing investment in durables more than in fixed capital. This rebalancing effect cushions the hit to future production. Thus, productivity shocks remain the prime driver for output fluctuations.