scholarly journals Oil and the world economy: some possible futures

2014 ◽  
Vol 372 (2006) ◽  
pp. 20120327 ◽  
Author(s):  
Michael Kumhof ◽  
Dirk Muir
Keyword(s):  
World Economy ◽  
Oil Prices ◽  
Dynamic Stochastic General Equilibrium ◽  
Output Growth ◽  
Production Functions ◽  
Supply Shocks ◽  
Conventional Production ◽  
The World ◽  
Production Technologies ◽  
Dynamic Stochastic

This paper, using a six-region dynamic stochastic general equilibrium model of the world economy, assesses the output and current account implications of permanent oil supply shocks hitting the world economy. 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, output growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

The World Economy: The impact of rising oil prices and weak equity markets on global growth

2008 ◽  
Vol 205 ◽  
pp. 8-13
Author(s):  
Ray Barrell
Keyword(s):  
Central Bank ◽  
World Economy ◽  
Financial Innovation ◽  
Oil Prices ◽  
Output Growth ◽  
Sequence Of Events ◽  
The Us ◽  
The World ◽  
The Uk ◽  
The Impact

In interesting times several things may happen simultaneously, and they may have connected roots. The financial turmoil that developed initially in the US banking sector had its roots in financial innovation that had made available cheap finance and increased demand for housing. This wave of low cost finance had spread to Europe, and house prices rose in a correlated way. The increase in demand in the world economy that resulted from strong growth in lending and high asset values helped raise output growth outside the OECD, and this in turn put upward pressure on oil prices. Markets sometimes work slowly, and the effects of the increase in demand on prices appear to be coming through just as the asset bubble is collapsing. The sequence of events was not inevitable, as low personal sector saving in the US and the UK as well as elsewhere could have been offset by tighter fiscal policy, and better prudential regulation of lenders would also definitely have helped. The desire to move financial regulation from the central bank, as in the UK, may have been for good, competition based, reasons, but it has meant that financial sector oversight has not taken account of the macroeconomic implications of a wave of lending that rested on risky financial innovation and therefore it has not properly addressed the issue of systemic risk (see Barrell and Davis, 2005). The resulting financial turmoil has meant that banks have made losses, and have been unable to trust each other's solvency when making deals. As a result three month interbank rates have risen well above central bank intervention rates, as can be seen in figure 1.

The World Economy

2003 ◽  
Vol 184 ◽  
pp. 9-35
Keyword(s):  
Latin America ◽  
World Economy ◽  
Oil Prices ◽  
Output Growth ◽  
Annual Rate ◽  
China And India ◽  
The Us ◽  
The World ◽  
The Impact ◽  
World Output

World output growth continues to recover from its trough in 2001, albeit rather hesitantly. The slowdown in output growth in 2001 was largely centred in the OECD, with the US, Japan and Germany all recording growth below 1 per cent. In the last three years growth has been robust in other regions, but particularly in Asia, with China and India growing rapidly. Even Latin America is expected to show some signs of recovery this year after the currency related disruptions it experienced in 2002. It is becoming clear that 2002 saw reasonably strong output growth of 2.8 per cent in aggregate, rising from 2.2 per cent in 2001. Our forecast for 2003 is that the annual rate of output growth in the world will continue to increase, but weakness in a number of countries, including the US, at the end of 2002 suggests that it will not accelerate further into next year. The impact of the realignment of the dollar and the euro will also hold back world growth slightly this year and next. Our forecasts for output growth and inflation along with trade and oil prices are set out in Table 1.

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