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Essay on Macroeconomic Effect of Petroleum
Macroeconomic of Petroleum: An Introduction
Recently, decision makers in an increasing number of countries have recognized that energy sector investment planning and pricing should be carried out on an integral basis, i.e. within the framework of a national energy master plan that determines energy policy, ranging from short-run supply-demand management to long run planning. Nevertheless, in actual fact investment planning and pricing are still carried out on an informal and at best partial or sub-sector basis. Thus, electricity and oil sub-sector planning have customarily been carried out independent of each other as well as independent of other energy subsectors. Given that energy was cheap, such partial approaches and the resulting economic losses were acceptable, but recently, with rising energy costs, changes in relative fuel prices, and substitution possibilities, the advantages of an integrated energy policy have become clear. (Munasinghe, Mohan (1980), An Integrated Framework for Energy Pricing in Developing Countries. Energy Department, Washington, D.C.
Over the past many decades, many scholars have examined the relationships between oil price and the macroeconomic performance of national economies. Various methods of analysis have produced different results, sometimes sharply different, sometimes reasonably.
Knut Mork (1994) lately has offered an exceptional review of oil and the business cycle. The research one decides is relevant evidence of macroeconomic impacts of oil price is important to what one’s evaluation of what the "evidence" points out.
Petroleum Market: A Historical Background
The analysis of the effects of oil price on GNP has been complex by other important events and changing economic conditions. The oil-supply shocks, in 1979-80 and 1990-91, a major oil price crash in 1986, three international recessions, bouts with inflation across the world, and slow economic growth in several major industrial countries. Clearly before this period, the world monetary system replaced the post-World War II system of attached exchange rates........
