Riksbank paper studies impact of oil on world business cycle

2501-oil-rig-commodities-compressed

Incorporating a global market for oil into models of the world economy can help solve two puzzling tensions between theory and empirics, according to a working paper published on June 1 by Sveriges Riksbank.

Johan Gars and Conny Olovsson set up a simple two-country model in their paper, adding oil as an input in addition to capital and labour, along with a measure of global oil supply. They introduce global oil supply shocks and country-specific shocks to generate their results.

Their model is

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