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Oil Price Shocks and the U.S. Economy: Where Does the Asymmetry Originate?

Nathan S. Balke, Stephen P.A. Brown and Mine K. Yucel

Year: 2002
Volume: Volume23
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No3-2
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Rising oil prices appear to retard aggregate U.S. economic activity by more than falling oil prices stimulate it. Past research suggests adjustment costs, financial stress, and/or monetary policy may be possible explanations for the asymmetric response. This paper uses a near vector autoregressive model of the U.S. economy to examine where the asymmetry might originate. The analysis uses counterfactual experiments to determine that monetary policy alone cannot account for the asymmetry.

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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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.

Disentangling The Effects of oil Shocks: The Role of Rigidities and Monetary Policy

Carlos de Miguel , Baltasar Manzano, Jose M. Martin-Moreno and Jesus Ruiz

Year: 2009
Volume: Volume 30
Number: Special Issue #2
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI2-9
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Using a new Keynesian, stochastic, dynamic model of a small open monetary economy that imports oil and applying it to the Spanish economy, this paper addresses the question of why the effects of oil shocks from the mid-1980�s on output and inflation were smaller. We depart from the previous literature on this topic by simulating a theoretical model whose parameters are estimated using Kalman Filter techniques. The paper is particularly appealing to study the effects of high energy prices, which would be associated to climate change policies, and to the feedback effects of those policies on the economy. The results of the paper support the hypothesis of smaller macroeconomic effects of oil shocks from the mid-1980�s. The results emerge from the different features of the economy: both labor market rigidities and the oil share have decreased over time and the monetary policy has changed in that it is more focused on controlling inflation.

Oil Price Shocks and Current Account Imbalances within a Currency Union

Timo Baas and Ansgar Belke

Year: 2023
Volume: Volume 44
Number: Number 4
DOI: 10.5547/01956574.44.4.tbaa
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For over two decades, current account imbalances have been an essential issue in the global policy debate as they threaten the world economy's stability. More recently, the government debt crisis of the European Union shows that internal current account imbalances of a currency union may also add to these risks. Moreover, oil price fluctuations and a contracting monetary policy that reacts to oil prices, previously discussed to affect the current account, may threaten the currency union by increasing internal imbalances. Therefore, this paper analyzes the oil price shock's impact on current account imbalances of a currency union with asymmetric labor market institutions. In this context, we show that oil price shocks can have a long-lasting effect on internal balances that the common monetary policy authority can reduce by choosing a core inflation target. Targeting core inflation, however, comes at the cost of lower production and higher unemployment. We show that these costs can be significantly reduced by increasing labor market flexibility.

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