Oil Prices, Welfare and the Trade Balance

Download or read book Oil Prices, Welfare and the Trade Balance written by Lars E. O. Svensson and published by . This book was released on 1982 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.