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Business Cycles and the Oil Market

Abstract:
The last twenty years have seen a number of oil-price changes with macroeconomic effects. Oil price increases spur inflation and produce recessions. Oil price declines dampen inflation, but do not necessarily boost real activity. The correlations can be traced back to World War II. The paper gives a survey of oil market events with macroeconomic consequences. It also discusses hypotheses about the nature of the link and efforts to incorporate oil in macroeconomic models. Business cycle research has recently advanced sectoral imbalance and uncertainty as leading hypotheses to explain the apparent asymmetry in the macroeconomic effects of oil price changes.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Investment and Finance – Corporate Strategy

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D92 - Intertemporal Firm Choice: Investment, Capacity, and Financing

Keywords: Oil Market, business cycles, oil prices, asymmetry, oil shocks

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-NoSI-3


Published in Volume 15, Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.