Energy and Growth Under Flexible Exchange Rates: A Simulation Study

Sachs, Jeffrey D.

This paper offers a theoretical framework for studying the interactions of energy prices and economic growth. The incorporation of energy prices and quantities in a macroeconomic setting focuses on (1) the aggregate technology; (2) the interdependence of energy producers and consumers in the world economy; and (3) the asset markets as the channel through which energy price changes affect output and capital accumulation. While several existing studies consider aspects of these issues, none provides a synthesis. In this analysis, a theoretically sound model of an oil price increase in the world economy is presented, carefully treating topics (1) - (3). The model is solved with computer simulation, as it is far too complex to yield analytical solutions.


More About This Work

Academic Units
Earth Institute
National Bureau of Economic Research
NBER Working Paper, 582
Published Here
September 28, 2009


Published as part of Economic Interdependence and Flexible Exchange Rates (Cambridge: MIT Press, 1983).