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Oil, Automobiles, and the U.S. Economy: How Much Have Things Really Changed?

In: NBER Macroeconomics Annual 2010, Volume 25

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  • Valerie A. Ramey
  • Daniel J. Vine

Abstract

This paper studies the impact of oil shocks on the U.S. economy—and on the motor vehicle industry in particular—and re-examines whether the relationship has changed over time. We find remarkable stability in the response of aggregate real variables to oil shocks once we account for the extra costs imposed on the economy in the 1970s by price controls and a complex system of entitlements that led to some rationing and shortages. To investigate further why the response of real variables to oil shocks has not declined over time, we focus on the motor vehicle industry, which is considered the most important channel through which oil shocks affect the economy. We find that, contrary to common perceptions, the share of motor vehicles in total U.S. goods production has shown little decline over time. Moreover, within the motor vehicle industry, the effects of oil shocks on the mix of vehicle sold and on capacity utilization appear to have been proportional in recent decades to the effects observed in the 1970s.

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This chapter was published in:

  • Daron Acemoglu & Michael Woodford, 2011. "NBER Macroeconomics Annual 2010, Volume 25," NBER Books, National Bureau of Economic Research, Inc, number acem10-1, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12036.

    Handle: RePEc:nbr:nberch:12036

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    Cited by:
    1. Kilian, Lutz & Vigfusson, Robert J., 2014. "The role of oil price shocks in causing U.S. recessions," CFS Working Paper Series 460, Center for Financial Studies (CFS).
    2. Elstner, Steffen, 2012. "Uncertainty, heterogeneous expectation errors and economic activity: evidence from business survey data," Munich Dissertations in Economics 14037, University of Munich, Department of Economics.
    3. Selien De Schryder & Gert Peersman, 2013. "The U.S. Dollar Exchange Rate and the Demand for Oil," CESifo Working Paper Series 4126, CESifo Group Munich.
    4. James D. Hamilton, 2010. "Nonlinearities and the Macroeconomic Effects of Oil Prices," NBER Working Papers 16186, National Bureau of Economic Research, Inc.
    5. Chancel, Lucas, 2014. "Are younger generations higher carbon emitters than their elders?," Ecological Economics, Elsevier, Elsevier, vol. 100(C), pages 195-207.
    6. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-2009 Recession," NBER Working Papers 18094, National Bureau of Economic Research, Inc.

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