Using macroeconometric models to assess the effects of oil price increases and energy policies
The success of any energy policy depends on the way economic agents respond to government action - or inaction. This report offers a review of the literature on energy-economy interactions. Three types of models have been used to study the macroeconomic effects of the 1973-1974 and 1978-1979 oil price shocks. This trichotomy reflects the state of the art of macroeconomic modeling in general. Statistical models make it possible to summarize conceptions among variables without any theoretical preconceptions. Since such models are not derived from any theory about the behavior of economic agents, they cannot explain the correlations. Statistical models relegate all events to surprises. Economic models analyze the fit of a theory to a set of data. However, so-called conventional economic models fail to distinguish adequately between an event as a surprise, on the one hand, and as a fundamental change in the environment in which economic agents operate on the other. This failure hampers the ability of these models to interpret events, and even more so, to predict future outcomes. The third category comprises models which are a hybrid of statistical and economic models: they incorporate behavioral relationships derived from economic theory which are sensitive to whether an event is interpreted as a surprise or a fundamental change in the economic environment. In principle such models meet the objections noted above.
- Research Organization:
- Resources for the Future, Inc., Washington, DC (USA)
- DOE Contract Number:
- AC01-80PE70267
- OSTI ID:
- 5319246
- Report Number(s):
- DOE/PE/70267-T20; ON: DE85016771
- Resource Relation:
- Other Information: Energy and National Security Series: Discussion Paper D-82P
- Country of Publication:
- United States
- Language:
- English
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