Riksbank paper studies impact of oil on world business cycle
Researchers find possible solution to macro puzzles by introducing oil shocks into a model of the global economy
Incorporating a global market for oil into models of the world economy can help solve two puzzling tensions between theory and empirics, according to a working paper published on June 1 by Sveriges Riksbank.
Johan Gars and Conny Olovsson set up a simple two-country model in their paper, adding oil as an input in addition to capital and labour, along with a measure of global oil supply. They introduce global oil supply shocks and country-specific shocks to generate their results.
Their model is
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