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An international perspective on oil price shocks and U.S. economic activity

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  • Nathan S. Balke
  • Stephen P. A. Brown
  • Mine K. Yücel

Abstract

The effect of oil price shocks on U.S. economic activity seems to have changed since the mid-1990s. A variety of explanations have been offered for the seeming change—including better luck, the reduced energy intensity of the U.S. economy, a more flexible economy, more experience with oil price shocks and better monetary policy. These explanations point to a weakening of the relationship between oil prices shocks and economic activity rather than the fundamentally different response that may be evident since the mid-1990s.> ; Using a dynamic stochastic general equilibrium model of world economic activity, we employ Bayesian methods to assess how economic activity responds to oil price shocks arising from supply shocks and demand shocks originating in the United States or elsewhere in the world. We find that both oil supply and oil demand shocks have contributed significantly to oil price fluctuations and that U.S. output fluctuations are derived largely from domestic shocks.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 20.

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Date of creation: 2008
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Handle: RePEc:fip:feddgw:20

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Keywords: Petroleum industry and trade ; Petroleum products - Prices ; International trade ; Economic conditions - United States;

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  1. Stephen P.A. Brown & Mine K. Yücel, 1999. "Oil prices and U.S. aggregate economic activity: a question of neutrality," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 16-23.
  2. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
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  9. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
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  17. Samaniego, Roberto M., 2006. "Organizational capital, technology adoption and the productivity slowdown," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1555-1569, October.
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  22. Bernanke, Ben S & Gertler, Mark & Watson, Mark W, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 287-91, April.
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Cited by:
  1. Brown, Stephen P.A. & Huntington, Hillard G., 2013. "Assessing the U.S. oil security premium," Energy Economics, Elsevier, vol. 38(C), pages 118-127.

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