Oil prices and the real business cycle: The case of Mexico

Thesis/Dissertation · Fri Jan 01 04:00:00 EST 1993

OSTI ID:7169135

Aboumrad, G J

In the last fifteen years, the Mexican economy has experienced periods of high economic growth, as well as dramatic setbacks. Throughout this period the stream of certain key macroeconomic aggregates of the Mexican economy maintained a close relation with the movements of the international price of crude oil. The oil industry is important to the Mexican economy because it represented for the period of study 56% of total exports, 14% of GDP and 37% of fiscal revenues. The aim of this dissertation is to identify how much of the short-term fluctuations of certain macroeconomic variables of the economy can be explained by fluctuations of the price of oil. The strategy is to set up a general equilibrium model and explore the extent to which it can account for the observed behavior of the Mexican economy's quarterly data, thus extending recent real business cycle models and numerical techniques to small open economies. The basic Dutch Disease model was modified. A labor-leisure choice, investment in all productive sectors, and adjustment costs in the formatation of capital were added. Oil is modeled explicitly. As extensions to the benchmark model, government consumption of both types of goods, tradables and non-tradables, as well as the holdings of real money were added. For this last model, money is held by the consumer because it enables him to economize on transaction costs. Oil prices were found to influence other exogenous variables affecting the Mexican economy, thus augmenting the impact of an oil price shock on the economy. Still, the theoretical correlation between GDP and the price of oil is lower than its empirical counterpart. The general conclusion is that the hypothesized existance of consumption smoothing should be questioned.

• Research Organization: Duke Univ., Durham, NC (United States)
• OSTI ID: 7169135
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290201* -- Energy Planning & Policy-- Economics-- (1992-)
294002 -- Energy Planning & Policy-- Petroleum
DEVELOPING COUNTRIES
ECONOMIC ANALYSIS
ECONOMIC IMPACT
ECONOMICS
ENERGY SOURCES
FOSSIL FUELS
FUELS
INDUSTRY
LATIN AMERICA
MATHEMATICAL MODELS
MEXICO
NORTH AMERICA
PETROLEUM
PETROLEUM INDUSTRY
PRICES
STATISTICAL MODELS