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Oil Shocks and Real U.S. Income

The analysis explains how previous oil shocks have affected real U.S. income. Real income differs from aggregate economic output (GDP) because it includes the purchasing power losses associated with more expensive imported petroleum. Real income declines immediately during the same quarter as the oil price shock as opposed to the output effects, which are lagged over several quarters. These immediate losses can be significant, reaching as much as 1.7% of the baseline value in the same quarter, for a doubling of crude oil prices. Expanding coverage to include purchasing power losses allows policy analysts to evaluate a range of different policy instruments that can influence oil prices, such as the building and release of the strategic petroleum reserve.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Energy Security; Energy and the Economy – Energy as a Productive Input; Energy and the Economy –Economic Growth and Energy Demand; Energy and the Economy – Resource Endowments and Economic Performance; Energy and the Economy – Energy Shocks and Business Cycles

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy
O13 - Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
Q34 - Natural Resources and Domestic and International Conflicts
F44 - International Business Cycles

Keywords: Oil shocks, oil prices, real income US, GDP, volatility

DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-2

Published in Volume 28, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.