Capros P., P. Karadeloglou, G. Mentzas (1991) "Energy Policies in a Macroeconomic Model: An Analysis of Energy Taxes when Oil Prices Decline", T. Sterner (ed.) "International Energy Modelling: Theory and Practice", Chapman and Hall, London.
In this paper we attempt an analysis of the issue of anticipated oil prices increases within the context of macroeconomic modelling. We retain a medium-term perspective and start by assuming that the economy experiences unemployment and excess capacity when the price decline occurs. The analysis excluded any response elements that refer to long-term equilibria, optimum allocation of resources or welfare characterization of results. Such issues should be analysed within the context of (price-adjusted) general equilibrium models rather than within the stream of (quantity adjusted) neo-Keynesian macroeconomic models. The latter approach is adopted in the present paper. It focuses on the short -to medium- term maladjustments, which can be better treated under the assumptions of imperfect competition and temporary disequilibrium. However long term results (which go to year 2000) are indicative of the long-term trend of the impacts.
The scope of the paper is not only to analyse energy and macroeconomic policy issues within the context of decreasing oil prices, but also to inquire into the properties of macro-econometric models currently used by the Commission of the European Communities, since the model used in one of the family of the HERMES macroeconometric models.
The paper adopts a dual approach by solving analytically an aggregate conceptual model and simulating a large-scale one. The next section of the paper provides a conceptual analysis with the use of a strongly simplified aggregate energy-economy model that replicates the properties of current large-scale neo-Keynesian models. The purpose of this construction is to attempt a standardization of models ' properties with respect to oil price variations and to illustrate the analysis based on large-scale modelling. The use of the large-scale model in several policy scenarios is presented in section 3. Section 4 highlights the conclusions as well as the limitations of our study.
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