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Energy Price Increases and Macroeconomic Policy

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  • Robert S. Pindyck

Abstract

A rising world price of energy imposes a macroeconomic cost on the United States in two different ways. First, to the extent that energy is both an important input to production and a consumption good, with limited elasticities of substitution and demand, the economy's production and consumption possibilities are necessarily reduced as energy becomes more scarce. Thus, even if an expansionary monetary and fiscal policy were successful in pushing the economy close to its full capacity level, the resulting real national income would be lower than if energy prices had not An earlier version of this paper was presented at the CEPR Conference on Energy Prices, Inflation and Economic Activity, Cambridge, November 9, 1979. Work leading to this paper was supported by the Center for Energy Policy Research of the M.I.T. Energy Laboratory, and that support is gratefully acknowledged. In writing this paper, I benefited considerably from conversations with and comments from Olivier Blanchard, Stanley Fischer, Benjamin Friedman, Robert Hall, Franco Modigliani, Robert Solow, and an anonymous referee.

Suggested Citation

  • Robert S. Pindyck, 1980. "Energy Price Increases and Macroeconomic Policy," The Energy Journal, , vol. 1(4), pages 1-20, October.
    • Handle: RePEc:sae:enejou:v:1:y:1980:i:4:p:1-20
    DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-1
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    1. Robert S. Pindyck, 1979. "The Structure of World Energy Demand," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661772, December.
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    Cited by:

    1. Zhang, Yanfang & Shi, Xunpeng & Qian, Xiangyan & Chen, Sai & Nie, Rui, 2021. "Macroeconomic effect of energy transition to carbon neutrality: Evidence from China's coal capacity cut policy," Energy Policy, Elsevier, vol. 155(C).
    2. Rondina, Francesca, 2012. "The role of model uncertainty and learning in the US postwar policy response to oil prices," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1009-1041.
    3. Behmiri, Niaz Bashiri & Pires Manso, José Ramos, 2014. "The linkage between crude oil consumption and economic growth in Latin America: The panel framework investigations for multiple regions," Energy, Elsevier, vol. 72(C), pages 233-241.
    4. W. F. Empey, 1981. "The Impact of Higher Energy Prices in Canada," Canadian Public Policy, University of Toronto Press, vol. 7(1), pages 28-35, Winter.
    5. Francesca Rondina, 2010. "Policy evaluation and uncertainty about the effects of oil prices on economic activity," UFAE and IAE Working Papers 855.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Enrico Turco & Davide Bazzana & Massimiliano Rizzati & Emanuele Ciola & Sergio Vergalli, 2022. "Energy price shocks and stabilization policies in a multi-agent macroeconomic model for the Euro Area," Working Papers 2022.25, Fondazione Eni Enrico Mattei.
    7. Turco, Enrico & Bazzana, Davide & Rizzati, Massimiliano & Ciola, Emanuele & Vergalli, Sergio, 2023. "Energy price shocks and stabilization policies in the MATRIX model," Energy Policy, Elsevier, vol. 177(C).
    8. Romero-Ávila, Diego & Omay, Tolga, 2022. "Convergence of per capita energy consumption around the world: New evidence from nonlinear panel unit root tests," Energy Economics, Elsevier, vol. 111(C).
    9. Timothy J. Considine, 1988. "Oil Price Volatility And U.S. Macroeconomic Performance," Contemporary Economic Policy, Western Economic Association International, vol. 6(3), pages 83-96, July.
    10. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    11. Stanley Fischer, 1983. "Supply Shocks, Wage Stickiness, and Accommodation," NBER Working Papers 1119, National Bureau of Economic Research, Inc.
    12. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.
    13. ElFayoumi, Khalid, 2018. "The balance sheet effects of oil market shocks: An industry level analysis," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 112-127.
    14. Pindyck, Robert S., 1986. "Capital risk and models of investment behavior," Working papers 1819-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    15. Francesca Rondina, 2017. "The Impact of Oil Price Changes in a New Keynesian Model of the U.S. Economy," Working Papers 1709E, University of Ottawa, Department of Economics.
    16. Malik, Farooq & Nasereddin, Mahdi, 2006. "Forecasting output using oil prices: A cascaded artificial neural network approach," Journal of Economics and Business, Elsevier, vol. 58(2), pages 168-180.

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    More about this item

    Keywords

    Energy prices; Price spikes; Macroeconomic policy;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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