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An amplification mechanism in a model of energy

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  • Anna Kormilitsina

Abstract

This paper investigates a propagation mechanism of the energy price shock in a model where capital utilization is associated with costly energy consumption. Endogenous depreciation is an important element of the model, as it has been shown to produce a significant negative effect of energy prices on output. I show that the amplifying effect of endogenous depreciation is determined by the choice of the functional form and calibration strategy for the energy cost function. My estimates of the energy cost function allow to conclude that the energy price shock has only a moderate effect on output in this model, while endogenous depreciation mitigates rather than amplifies the effect of the energy price shock.

Suggested Citation

  • Anna Kormilitsina, 2016. "An amplification mechanism in a model of energy," Canadian Journal of Economics, Canadian Economics Association, vol. 49(4), pages 1425-1440, November.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:4:p:1425-1440
    DOI: 10.1111/caje.12239
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    1. Finn, Mary G, 2000. "Perfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 400-416, August.
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    5. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
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    7. Luõs Aguiar-Conraria & Yi Wen, 2007. "Understanding the Large Negative Impact of Oil Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 925-944, June.
    8. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
    9. Anna Kormilitsina, 2011. "Oil Price Shocks and the Optimality of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 199-223, January.
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    Cited by:

    1. Anna Kormilitsina, 2011. "Oil Price Shocks and the Optimality of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 199-223, January.
    2. Gao, Lin & Hitzemann, Steffen & Shaliastovich, Ivan & Xu, Lai, 2022. "Oil volatility risk," Journal of Financial Economics, Elsevier, vol. 144(2), pages 456-491.

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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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