Energy and Growth Under Flexible Exchange Rates: A Simulation Study
NBER Working Paper 582
This paper offers a theoretical framework for studying the interactions of energy prices and economic growth. The incorporation of energy prices and quantities in a macroeconomic setting focuses on the aggregate technology; (2) the interdependence of energy producers and consumers in the world economy; and (3) the asset markets as the chanel through which energy price changes affect output and capital accumulation. While several existing studies consider aspects of these issues, none provides a synthesis. In this analysis, a theoretically sound model of an oil price increase in the world economy is presented, carefully treating topics(1)—(3). The model is solved with computer simulation, as it is far to complex to yield analytical solutions.