IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects

Abstract:
This paper considers the macroeconomics of the oil price for the United States. It investigates the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification. The explanatory power of this new specification is compared to that of a number of prominent non-linear specifications. The key findings are: (1) the new oil price specification is appropriate in both empirical and theoretical terms and allows for a well-founded distinction between ÒlargeÓ and ÒnormalÓ oil price increases. (2) The observed impact of oil price shocks on real GDP growth is largely attributable to no fewer than three large oil price increases, namely those of 1973-74, 1979 and 1991, while variables such as consumer and import prices are also affected by normal oil price increases.

Purchase ( $25 )

Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation

JEL Codes: Q43: Energy and the Macroeconomy, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q41: Energy: Demand and Supply; Prices, Q35: Hydrocarbon Resources

Keywords: Oil price shocks, vector autoregression, Granger causality, impulse responses, Markov-switching, non-linear models

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-7

Published in Volume 29, Number 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

© 2023 International Association for Energy Economics | Privacy Policy | Return Policy