Oil price shocks in an island economy: an analysis of the oil price-macroeconomy relationship

This study seeks to clarify the oil price-macroeconomy relationship within a small open economy using a computable general equilibrium model for Hawaii. Like many islands, Hawaii is both oil and tourism-dependant. Hawaii meets nearly 90% of its energy needs through oil-burning and tourism accounts for roughly one-third of the economy. A doubling of the world price of oil is simulated, showing macro, sector, and consumer welfare changes. The industry of primary interest, the petroleum manufacturing sector, constrains real output of refined petroleum product and passes along a substantial portion of the price burden.