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Oil Price Shocks and Aggregate Fluctuations

Abstract:
This paper analyzes the effects of oil price shocks on the characteristics of the business cycle and on welfare in a small open economy, such as in the case of the Spanish economy. The results show the ability of the model to reproduce the business cycle path of the Spanish economy, especially in those periods when shocks in the price of oil were most dramatic. Furthermore, the model reproduces other regularities of the Spanish business cycle. Finally, it is shown that the increases in the relative price oil had a negative and significant effect on welfare.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Energy Security

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy

Keywords: oil price shocks, trade shocks, aggregate fluctuations, emerging economies, Spain

DOI: 10.5547/ISSN0195-6574-EJ-Vol24-No2-2


Published in Volume24, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.