New Estimates for the Macroeconomic Implications of Oil Price Shocks

Grants and Contracts Details


With funding from the US Department of Energy and the Alfred P. Sloan Foundation, Resources for the Future (RFF) and its partners propose to develop a new set estimates of the macroeconomic impacts, including the energy security benefits, of reduced US oil demand for use in cost benefit analyses (CBAs) associated with various policies, such as changes in fuel economy standards. The program of work involves nine interrelated tasks: 1. Review of the relevant oil market literature. 2. Review of fuel economy literature. 3. Evaluation of the response of US GDP and welfare to oil supply shocks using a dynamic, stochastic general equilibrium (DSGE) model. 4. Evaluation of effects on US GDP of oil supply shocks using a structural vector autoregressive (SV AR) model. 5. Evaluation of effects on US GDP of oil supply shocks using NEMS. 6. Calculation of energy security premiums. 7. Sensitivity and uncertainty analyses. 8. Project review. 9. Concluding workshop. Subcontractor Responsibilities The University of Kentucky's Ana Maria Herrera will have primary responsibility for Task 4, and will contribute to a number of other tasks. Dr. Herrera will develop and use a new SV AR model that will build on Hamilton and Herrera (2004), Balke, Brown, and Yucel (2002), and Kilian (2009) to provide an estimate of the dynamic response of aggregate GDP to oil price shocks. Thus, the model will distinguish between different sources of oil price shocks, with these shocks identified via short-run restrictions. Dr. Herrera will also contribute to Task 6, in which the three macro models- including the SY AR model- will be used to simulate various scenarios to be developed by the RFF team. Their results (primarily in the form of an elasticity of GDP with respect to the oil price shock, but other variables as well) will be input into a spreadsheet model designed to also combine findings from the literature review and modeling in Tasks 3, 4 and 5 to estimate energy security premiums associated with various transportation policies. Dr. Herrera will also use the SY AR model to conduct sensitivity and uncertainty analyses (Task 7) to generate a range of energy security premiums that reasonably covers uncertainties about the future and the limits of our understanding. Finally, Dr. Herrera will participate in the project review meetings and concluding workshop.
Effective start/end date2/15/1612/31/16


  • Resources for the Future Incorporated: $26,235.00


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