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Oil Price Shocks and Real GDP Growth: Testing for Non-linearity

Abstract:
This paper presents evidence of a non-linear relationship between real GDP growth and oil price changes for the US economy. We also argue that this non-linearity is not merely due to the use of data from the mid-1980s onwards, as most authors, so far, seem to believe. In fact, we find the existence of non-linearity with the use of data earlier than 1984, and even before 1977. Furthermore, we question that the non-linear transformations of oil prices proposed in the literature are the most appropriate ones for reflecting such non-linearity.

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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 price shocks, Non-linearity, GDP, US

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No1-1


Published in Volume 30, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.