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Crude Oil Prices and U.S. Economic Performance: Where Does the Asymmetry Reside?

Abstract:
Sustained decreases in crude oil prices appear to affect the U.S. economy differently than sustained increases. This paper shows that a significant part of the observed asymmetry is due to adjustments within the energy sector and not within the rest of the economy. In particular, sustained decreases in petroleum product or general energy prices do not appear to have qualitatively different macroeconomic impacts than do sustained price increases. The singular focus on crude oil price changes in previous studies is misplaced. Moreover, the 1986 oil price collapse did not operate in isolation from other important events. As crude oil prices fell in the 1986 period, other factors caused a major devaluation of the U.S. dollar that had potentially important effects on the U.S. economy.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Sectoral Energy Demand & Technology

JEL Codes: Q43: Energy and the Macroeconomy, Q41: Energy: Demand and Supply; Prices, Q01: Sustainable Development, E52: Monetary Policy, Q56: Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

Keywords: Oil prices, asymmetry, US economy, price shock, oil supply shocks

DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-5


Published in Volume19, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.