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Oil shocks and the US terms of trade: gauging the role of the trade channel

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  • Alessandro Maravalle

Abstract

Recent theoretical literature claims that demand-driven transmission mechanisms are the key to understand how oil shocks affect the economy. Following this literature, we measure the economic strength of one of these demand-driven channels, the trade channel, in the transmission of oil shocks to the US economy. We use Kilian's (2009) decomposition of oil price shocks to identify three possible sources of oil shocks: oil supply, oil-market specific demand and global demand shocks. We then estimate the impact of each shock on the US terms of trade controlling for nonlinear effects in the sign and the size of the shocks. All oil shocks have persistent and statistically significant effects on the US terms of trade. However, we find that only oil supply shocks have an impact on the terms of trade that is nonlinear in the size of the shock. This last result is in accordance with the theoretical findings in Maravalle (forthcoming).

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  • Alessandro Maravalle, 2013. "Oil shocks and the US terms of trade: gauging the role of the trade channel," Applied Economics Letters, Taylor & Francis Journals, vol. 20(2), pages 152-156, February.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:2:p:152-156
    DOI: 10.1080/13504851.2012.684779
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    Cited by:

    1. van de Ven, Dirk Jan & Fouquet, Roger, 2017. "Historical energy price shocks and their changing effects on the economy," Energy Economics, Elsevier, vol. 62(C), pages 204-216.

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