Production takes time, and labor supply and profit maximization decisions that relate to current production are typically made before all shocks affecting that production have been realized. In this paper we re-examine the problem of stochastic optimal growth with aggregate risk where the timing...

Simulations from a standard two-region model where producers respond to changes in interest rates are better able to match observed data than an identical model without supply-side responses. This indicates that incorporating the supply-side behaviour of oil producers is quantitatively important...

The model simulated in this paper shows that falling interest rates contribute to rising oil prices. This occurs because oil producers treat oil in the ground as an asset and attempt to arbitrage differences between its rate of return and the interest rate. When calibrated to match observed data...