TY - JOUR AU - Elekdag,Selim AU - Lalonde,Rene AU - Laxton,Douglas AU - Muir,Dirk AU - Pesenti,Paolo TI - Oil Price Movements and the Global Economy: A Model-Based Assessment JF - National Bureau of Economic Research Working Paper Series VL - No. 13792 PY - 2008 Y2 - February 2008 UR - http://www.nber.org/papers/w13792 L1 - http://www.nber.org/papers/w13792.pdf N1 - Author contact info: Selim A. Elekdag International Monetary Fund 700 19th Street Washington, DC 20431 E-Mail: selekdag@imf.org Rene Lalonde Bank of Canada 234 Wellington Street Ottawa ON Canada K1A 0G9 E-Mail: LALX@bank-banque-canada.ca Douglas Laxton International Monetary Fund 700 19th Street Washington, DC 20431 E-Mail: dlaxton@imf.org Dirk Muir Bank of Canada 234 Wellington Street, Ottawa ON Canada K1A 0G9 E-Mail: dmuir@bank-banque-canada.ca Paolo A. Pesenti Federal Reserve Bank of New York 33 Liberty Street New York, NY 10045 Tel: 212/720-5493 Fax: 212/720-6831 E-Mail: paolo.pesenti@ny.frb.org AB - We develop 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 (GEM) encompassing production and trade of crude oil, and use it to study the international transmission mechanism of shocks that drive oil prices. 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 (in particular, emerging Asia), 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 towards more capital- (and hence oil-) intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline that are used to reduce taxes on labor income, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption. ER -