() and Conny Olovsson
Johan Gars: GEDB, Royal Swedish Academy of Sciences, Postal: SE-104 05 Stockholm, Sweden
Conny Olovsson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: To what extent is the international business cycle affected by the fact that an essential input (oil) is traded on the world market? We quantify the contribution of oil by setting up a model with separate shocks to efficiencies of capital/labor and oil, as well as global shocks to the oil supply. We find that the shocks to the supply and the efficiency of oil both contribute to positive comovements. These two shocks are also relatively transitory, which induces high responses in output and low responses in consumption. As a consequence, the model resolves both the consumption correlation puzzle and the international comovement puzzle.
51 pages, May 1, 2017
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