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OIL DEPENDENCE, INTERNATIONAL BORROWINGS, AND ECONOMIC INSTABILITY IN A SMALL OPEN ECONOMY
Published online by Cambridge University Press: 08 August 2016
Abstract
The existing literature dealing with mutual interactions between the extent of oil dependence and the possibility of belief-driven fluctuations unanimously ignores international loans. This simplified assumption disregards the fact that the relative magnitude of the financial account and the trade account exhibits an increasing trend. Faced with this deficiency in the literature, this paper develops a real business cycle model featuring oil dependence in domestic production and international loans, and examines whether both the presence of international borrowings and the dependence on imported energy will govern the emergence of belief-driven fluctuations.
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- Copyright © Cambridge University Press 2016
Footnotes
We are deeply grateful to two anonymous referees for their constructive comments, which substantially improved the paper. We are also indebted to Cheng-wei Chang and Chih-hsing Liao for their helpful suggestions and comments regarding earlier versions of the paper. Any remaining errors or shortcomings are, however, the authors' responsibility. Financial support from the National Science Council of Taiwan, under Grant NSC 101-2410-H-001-008-MY1, is gratefully acknowledged.
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