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Oil prices, the terms of trade and private consumption

Author

Listed:
  • Bokan, Nikola
  • Dossche, Maarten
  • Rossi, Luca

Abstract

Oil prices affect private consumption through direct and indirect channels. An increase in oil prices affects households' purchasing power directly through higher prices for oil-based energy products (e.g. petrol, heating oil). In the euro area about one-third of the economy's total oil use is in the form of final consumption, i.e. the use by consumers of such products. The other two-thirds comes from oil being used in the production of non-energy goods. A rise in oil prices implies an increase in the production costs of these sectors. If these costs cannot be passed on to the final prices of these goods, there will be an indirect impact on households' purchasing power, since either wages or profits received from these sectors will be lower. Moreover, for advanced economies that produce oil (e.g. Canada, Norway, the United Kingdom and the United States) the indirect effects through wages and profits from the oil-producing sector are even more important. JEL Classification: E01, E21

Suggested Citation

  • Bokan, Nikola & Dossche, Maarten & Rossi, Luca, 2018. "Oil prices, the terms of trade and private consumption," Economic Bulletin Boxes, European Central Bank, vol. 6.
  • Handle: RePEc:ecb:ecbbox:2018:0006:3
    Note: 2613775
    as

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    File URL: https://www.ecb.europa.eu//pub/economic-bulletin/focus/2018/html/ecb.ebbox201806_03.en.html
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    Citations

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    Cited by:

    1. Tarek Ghazouani, 2020. "Energy Price Shocks and Financial Market Integration: Evidence from New Keynesian Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 26(1), pages 13-32, February.
    2. Herrera, Ana MarĂ­a & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2019. "Oil price shocks and U.S. economic activity," Energy Policy, Elsevier, vol. 129(C), pages 89-99.

    More about this item

    Keywords

    consumption; oil prices; terms of trade;
    All these keywords.

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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