#2006-060B "A Note on Oil Dependence and Economic Instability"
by Luís Aguiar-Conraria, and Yi Wen
November 2006
Revised September 2007

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self- fulfilling expectations easier to occur. More...

FORTHCOMING: Macroeconomic Dynamics

#2005-042B "Understanding the Large Negative Impact of Oil Shocks"
by Luís Aguiar-Conraria, and Yi Wen
June 2005
Revised February 2006

This paper offers a plausible explanation for the close link between oil prices and aggregate macroeconomic performance in the 1970s. Although this link has been well documented in the empirical literature, standard economic models are not able to replicate this link when actual oil prices are used to simulate the models. More...

PUBLISHED: Journal of Money, Credit, and Banking, June 2007, 39(4), pp. 925-44

#2005-041A "Foreign Trade and Equilibrium Indeterminacy"
by Luís Aguiar-Conraria, and Yi Wen
June 2005

We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale, making self-fulfilling expectations driven busyness cycles easier to arise. This is demonstrated using a standard neoclassical growth model. More...