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Discussion Paper Details

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Title: Oil Price Shocks, Unemployment, Investment and the Current Account: An Intertemporal Disequilibrium Analysis

Author(s): Sweder van Wijnbergen

Publication Date: June 1985

Keyword(s): Classical Unemployment, Disequilibrium, Factor Price Changes, Keynesian Unemployment and Stabilization Policy

Programme Area(s): International Macroeconomics

Abstract: We use an intertemporal model incorporating short-run labour and goods markets disequilibrium to analyse the consequences of oil price shocks for unemployment, investment and the current account. A dominant transfer element leads to Keynesian unemployment now and deterioration tomorrow in the final-goods terms of trade. A dominant supply-shock element leads to classical unemployment now and an improvement tomorrow in the final-goods terms of trade. Investment falls if there is classical unemployment but increases in the K-region under Putty-Clay technology. Current account deficits are larger in the K-region than in the C-region. If world interest rates fall, investment accelerates in the K-region but not in the C-region. We use these results to explain observed differences in response to oil shocks.

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Bibliographic Reference

van Wijnbergen, S. 1985. 'Oil Price Shocks, Unemployment, Investment and the Current Account: An Intertemporal Disequilibrium Analysis'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=65