NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach

Lars E.O. Svensson

NBER Working Paper No. 991
Issued in September 1982
NBER Program(s):   ITI   IFM

The paper examines welfare effects and the trade balance response to changes in the world oil prices and interest rates for a small oil-importing economy. The trade balance is mainly seen as the difference between saving and investment, and these are derived from intertemporal optimization. It is shown that the welfare effects consist of static terms of trade effects, intertemporal terms of trade effects, and employment effects. The trade balance deteriorates for temporary oil price increases, whereas its response is ambiguous for permanent oil price increases. For a fall in the world interest rate, the trade balance deteriorates, if the economy is a net borrower.

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Document Object Identifier (DOI): 10.3386/w0991

Published: Svensson, Lars E.O. "Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach." Quarterly Journal of Economics, Vol. 99, 1984, pp. 649-672 .

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