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Accounting for the declining economic effects of oil price shocks

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  • Lyu, Yifei

Abstract

Many studies have concluded that the effects of oil price shocks have diminished since the mid-1980s. This paper revisits the evidence in Blanchard and Galí (2010)​. I show that the apparent instability in the oil price-macroeconomy relationship they find can be accounted for by the endogeneity of oil price changes and the lower energy share in consumption in recent decades. When these two factors are taken into account, the effects of oil price shocks on real economic activity appear to be stable over time. Nevertheless, the impact of oil prices on inflation has noticeably weakened.

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  • Lyu, Yifei, 2021. "Accounting for the declining economic effects of oil price shocks," Energy Economics, Elsevier, vol. 96(C).
    • Handle: RePEc:eee:eneeco:v:96:y:2021:i:c:s0140988320303558
    DOI: 10.1016/j.eneco.2020.105015
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    Cited by:

    1. Antonio J., Garzón & Luis A., Hierro, 2022. "Inflation, oil prices and exchange rates. The Euro’s dampening effect," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 130-146.

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    More about this item

    Keywords

    VAR; Oil price; Instability; Energy share; Oil demand; Impulse response;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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