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Energy Price Shocks and the Macroeconomy: The Role of Consumer Durables


  • We thank the editor Masao Ogaki, an anonymous referee, John Duffy, James Hamilton, Lutz Kilian, Ellen McGrattan, Erwan Quintin, Pedro Silos, Ellis Tallman, Tao Zha, and seminar participants at the Federal Reserve Banks of Atlanta and St. Louis, Villanova University, the 2006 Western Economic Association Meetings, and the 2006 Society of Economic Dynamics Summer Meetings for their helpful comments and discussion. All errors are our responsibility.


We create a model with a distinction between investment in consumer durables and capital goods, as well as energy use by households and firms, to evaluate the importance of energy price shocks for output fluctuations. Simulation results indicate that this economy has a smaller proportion of output fluctuations attributable to energy price shocks than one without durable goods and household energy use. We show that an energy price hike is absorbed by reducing investment in durables more than in fixed capital. This rebalancing effect cushions the hit to future production. Thus, productivity shocks remain the prime driver for output fluctuations.

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