The role of energy prices in the Great Recession — A two-sector model with unfiltered data

Aminu, Nasir ORCID: https://orcid.org/0000-0002-7913-1032, Meenagh, David ORCID: https://orcid.org/0000-0002-9930-7947 and Minford, Patrick ORCID: https://orcid.org/0000-0003-2499-935X 2018. The role of energy prices in the Great Recession — A two-sector model with unfiltered data. Energy Economics 71 , pp. 14-34. 10.1016/j.eneco.2018.01.030

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Abstract

We investigate the role of energy shocks during the Great Recession. We study the behaviour of the UK energy and non-energy intensive sectors firms in a real business cycle (RBC) model using unfiltered data. The model is econometrically estimated and tested by indirect inference. Output contraction during the Great Recession was largely caused by energy price and sector-specific productivity shocks, all of which are non-stationary and hence tend to dominate the sample variance decomposition. We also found that the channel by which the energy price shock reduces output in the model is via the terms of trade: these fall permanently when world energy prices increase and as substitutes for energy inputs are strictly limited there are few reactions via production channels. Therefore, there is no other way to balance the deteriorating current account than through lower domestic absorption.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Advanced Research Computing @ Cardiff (ARCCA) Business (Including Economics)
Publisher:	Elsevier
ISSN:	0140-9883
Date of First Compliant Deposit:	23 February 2018
Date of Acceptance:	25 January 2018
Last Modified:	08 Nov 2024 03:45
URI:	https://orca.cardiff.ac.uk/id/eprint/109398

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