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This paper, using a six-region DSGE model of the world economy, assesses the GDP and current account implications of permanent oil supply shocks hitting the world economy at an unspecified future date. For modest-sized shocks and conventional production technologies the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, GDP growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

Chemical & Materials Engineering --- Engineering & Applied Sciences --- Chemical Engineering --- Petroleum products. --- Economic geography. --- Geography, Economic --- World economics --- Mazut --- Geography --- Commercial geography --- Petroleum --- Hydraulic fluids --- Refining --- Petroleum products --- Energy consumption --- Prices&delete& --- Econometric models --- E-books --- Consumption of energy --- Energy efficiency --- Fuel consumption --- Fuel efficiency --- Power resources --- Energy conservation --- Prices --- Investments: Energy --- Macroeconomics --- Economic Theory --- Industries: Energy --- Bayesian Analysis: General --- Forecasting and Other Model Applications --- Nonrenewable Resources and Conservation: Demand and Supply --- Exhaustible Resources and Economic Development --- Energy: General --- Energy: Demand and Supply --- Price Level --- Inflation --- Deflation --- Agriculture: Aggregate Supply and Demand Analysis --- Macroeconomics: Production --- Investment & securities --- Economic theory & philosophy --- Petroleum, oil & gas industries --- Oil --- Oil prices --- Price elasticity --- Demand elasticity --- Oil production --- Commodities --- Economic theory --- Production --- Petroleum industry and trade --- Elasticity --- Economics --- United States