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A Note On Oil Dependence And Economic Instability

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  • Aguiar-Conraria, Luís
  • Wen, Yi

Abstract

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making it easier for fluctuations driven by self-fulfilling expectations 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.

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  • Aguiar-Conraria, Luís & Wen, Yi, 2008. "A Note On Oil Dependence And Economic Instability," Macroeconomic Dynamics, Cambridge University Press, vol. 12(5), pages 717-723, November.
    • Handle: RePEc:cup:macdyn:v:12:y:2008:i:05:p:717-723_07
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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.
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    4. Zhang, Yan, 2009. "Tariff and Equilibrium Indeterminacy," MPRA Paper 13099, University Library of Munich, Germany.

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