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

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Author Info
Donald W. Jones
Paul N. Leiby
Inja K. Paik
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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Publisher Info
Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): 25 (2004)
Issue (Month): 2 ()
Pages: 1-32
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Handle: RePEc:aen:journl:2004v25-02-a01

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F0 - International Economics - - General

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  1. Nicholas Apergis & Stephen M. Miller, 2009. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working Papers 0917, University of Nevada, Las Vegas , Department of Economics. [Downloadable!]
    Other versions:
  2. J. Isaac Miller & Ronald Ratti, 2008. "Crude Oil and Stock Markets: Stability, Instability, and Bubbles," Working Papers 0810, Department of Economics, University of Missouri, revised 20 Jan 2009. [Downloadable!]
    Other versions:
  3. Ashima Goyal & Arjun Singh, 2006. "Through a glass darkly: Deciphering the impact of oil price shocks," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2006-012, Indira Gandhi Institute of Development Research, Mumbai, India. [Downloadable!]
  4. Kilian, Lutz & Vigfusson, Robert J., 2009. "Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks," CEPR Discussion Papers 7284, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Ashima Goyal, 2009. "Through a Glass Darkly: Deciphering the Impact of Oil Price Shocks," Working Papers id:1826, esocialsciences.com. [Downloadable!]
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