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Oil production, oil prices, and macroeconomic adjustment under different wage assumptions

Journal Article


Abstract


  • The paper is an extension to another paper recently published in this same journal by Harvie (1990a). In that paper he developed a simple model to try to identify the possible macroeconomic adjustment processes arising in an economy experiencing a temporary period of oil production, under alternative wage adjustment assumptions, namely nominal and real wage rigidity. Certain assumptions were made regarding the characteristics of actual oil production, the permanent revenues generated from that oil production, and the net exports/imports of oil. The role of the price of oil, and possible changes in that price, was essentially ignored, which was equivalent there to setting it to a value of zero. Hence Harvie (1990a) was effectively concerned with analysing the economic effects arising from the production of oil alone. Here we attempt to overcome this deficiency by incorporating the price of oil, as well as changes in that price, in conjunction with the production of oil, the objective being to identify the contribution which the price of oil, and changes in it, make to the adjustment process itself. As in Harvie (1990a), the emphasis in this paper is not given to a mathematical derivation and analysis of the model's dynamics of adjustment or its comparative statics. But rather to the derivation of simulation results from the model, for a specific assumed case, using a numerical algorithm program, conducive to the type of theoretical framework utilized here. The results presented suggest that although the adjustment profiles of the macroeconomic variables of interest, for either wage adjustment assumption, remain fundamentally the same, the magnitude of these adjustments is increased. Hence, to derive a more accurate picture of the dimensions of adjustment of these macroeconomic variables, it is essential to include the price of oil as well as changes in that price. Copyright © 1992 John Wiley & Sons, Ltd.

Publication Date


  • 1992

Citation


  • Harvie, C., & Maleka, P. T. (1992). Oil production, oil prices, and macroeconomic adjustment under different wage assumptions. International Journal of Energy Research, 16(2), 139-150. doi:10.1002/er.4440160206

Scopus Eid


  • 2-s2.0-0026613913

Web Of Science Accession Number


Start Page


  • 139

End Page


  • 150

Volume


  • 16

Issue


  • 2

Abstract


  • The paper is an extension to another paper recently published in this same journal by Harvie (1990a). In that paper he developed a simple model to try to identify the possible macroeconomic adjustment processes arising in an economy experiencing a temporary period of oil production, under alternative wage adjustment assumptions, namely nominal and real wage rigidity. Certain assumptions were made regarding the characteristics of actual oil production, the permanent revenues generated from that oil production, and the net exports/imports of oil. The role of the price of oil, and possible changes in that price, was essentially ignored, which was equivalent there to setting it to a value of zero. Hence Harvie (1990a) was effectively concerned with analysing the economic effects arising from the production of oil alone. Here we attempt to overcome this deficiency by incorporating the price of oil, as well as changes in that price, in conjunction with the production of oil, the objective being to identify the contribution which the price of oil, and changes in it, make to the adjustment process itself. As in Harvie (1990a), the emphasis in this paper is not given to a mathematical derivation and analysis of the model's dynamics of adjustment or its comparative statics. But rather to the derivation of simulation results from the model, for a specific assumed case, using a numerical algorithm program, conducive to the type of theoretical framework utilized here. The results presented suggest that although the adjustment profiles of the macroeconomic variables of interest, for either wage adjustment assumption, remain fundamentally the same, the magnitude of these adjustments is increased. Hence, to derive a more accurate picture of the dimensions of adjustment of these macroeconomic variables, it is essential to include the price of oil as well as changes in that price. Copyright © 1992 John Wiley & Sons, Ltd.

Publication Date


  • 1992

Citation


  • Harvie, C., & Maleka, P. T. (1992). Oil production, oil prices, and macroeconomic adjustment under different wage assumptions. International Journal of Energy Research, 16(2), 139-150. doi:10.1002/er.4440160206

Scopus Eid


  • 2-s2.0-0026613913

Web Of Science Accession Number


Start Page


  • 139

End Page


  • 150

Volume


  • 16

Issue


  • 2