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A note on oil dependence and economic instability

Author

Listed:
  • Luis Aguiar-Conraria
  • Yi Wen
Abstract
We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

Suggested Citation

  • Luis Aguiar-Conraria & Yi Wen, 2007. "A note on oil dependence and economic instability," Working Papers 2006-060, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2006-060
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Yan & Chen, Yan, 2012. "Tariff And Equilibrium Indeterminacy: A Global Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S3), pages 394-410, November.
    2. Snudden, Stephen, 2016. "Cyclical fiscal rules for oil-exporting countries," Economic Modelling, Elsevier, vol. 59(C), pages 473-483.
    3. Aguiar-Conraria, Luís & Wen, Yi, 2012. "OPEC's oil exporting strategy and macroeconomic (in)stability," Energy Economics, Elsevier, vol. 34(1), pages 132-136.
    4. Zhang, Yan, 2009. "Tariff and Equilibrium Indeterminacy," MPRA Paper 13099, University Library of Munich, Germany.

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    Petroleum industry and trade; Economic stabilization;

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