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Historical Causes of Postwar Oil Shocks and Recessions

James D. Hamilton

Year: 1985
Volume: Volume 6
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No1-9
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Abstract:
Turbulent petroleum markets and poor economic performance have been making headlines for the last decade. Three major oil shocks (1973-1974, 1979, and 1980-1981) have each been followed by major recessions. While the magnitude and violence of recent oil price changes are unique in postwar experience, the phenomenon of political instability producing disruptions in petroleum supply is not. Hamilton (1983a) observed that all but one of the recessions in the United States since World War II were preceded-typically by about nine months-by a dramatic increase in the price of crude petroleum (see Figure 1).



Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996

Donald W. Jones, Paul N. Leiby and Inja K. Paik

Year: 2004
Volume: Volume 25
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No2-1
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Abstract:
This paper reports on developments in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks since 1996, when the U.S. Department of Energy sponsored a workshop summarizing the state of understanding of the subject. Four major insights stand out. First, theoretical and empirical analyses point to intra- and intersectoral reallocations in response to shocks, generating asymmetric impacts for oil price increases and decreases. Second, the division of responsibility for post-oil-price shock recessions between monetary policy and oil price shocks, has leaned heavily toward oil price shocks. Third, parametric statistical techniques have identified a stable, nonlinear, relationship between oil price shocks and GDP from the late 1940s through the third quarter of 2001. Fourth, the magnitude of effect of an oil price shock on GDP, derived from impulse response functions of oil price shocks in the GDP equation of a VAR, is around -0.05 and -0.06 as an elasticity, spread over two years, where the shock threshold is a price change exceeding a three-year high.





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