How oil prices affect the economy
A new working paper from the Bank of Canada looks at Canada, Britain and the US and finds that oil prices affect the economy primarily through the supply side.
The authors Brian DePratto, Carlos de Resende, and Philipp Maier build a New Keynesian general-equilibrium open economy model that allows changes in oil prices to be transmitted through "temporary demand and supply channels (affecting the output gap), as well as through persistent supply side effects (affecting trend growth)."
Testing the
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