Journal
IMF STAFF PAPERS
Volume 55, Issue 2, Pages 297-311Publisher
PALGRAVE MACMILLAN LTD
DOI: 10.1057/imfsp.2008.3
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This paper develops a five-region version - Canada, a group of oil-exporting countries, the United States, emerging Asia, and Japan plus the euro area - of the global economy model encompassing production and trade of crude oil. In the presence of real adjustment costs that reduce the short- and medium-term responses of oil supply and demand, our simulations can account for large endogenous variations of oil prices with large effects on the terms of trade of oil-exporting versus oil-importing countries, and result in significant wealth transfers between regions. This is especially true when we consider a sustained increase in productivity growth or a shift in production technology toward more oil-intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption.
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