Does Production Function Specification Matter for Macroeconomic Effects of Energy Shocks?

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Title: Does Production Function Specification Matter for Macroeconomic Effects of Energy Shocks?
Authors: Liu, Zichao
Date: 2014-12-31
Abstract: Following Dhawan, Jeske and Silos (2010), this paper firstly examines whether the explanatory power of a “spillover” effect to the Great Moderation will change if we change the form of production function in Dhawan, Jeske and Silos (2010). Then it compares impulse responses of key macroeconomic variables to energy price shocks given different production function specifications. This paper finds that production function specification doesn’t seem to play an important role in explaining of the explanatory power of a “spillover” effect to the Great Moderation, but it may have an impact on the responses of some of the key macroeconomic variables to energy price shocks. One noteworthy result emerges with the two-level CES production function that combines labour and energy inputs in the first nesting, and then combines this aggregate with capital, i.e. the (LE)K case. Here, the responses of consumption, working hours and wage may be sensitive to the slightly positive “spillover” effect in the late period estimated by Dhawan, Jeske and Silos (2010).
URL: http://hdl.handle.net/10393/32045
CollectionScience économique - Mémoires // Economics - Research Papers
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