Advanced Search
MyIDEAS: Login to save this paper or follow this series

Do oil shocks drive business cycles? some U.S. and international evidence

Contents:

Author Info

  • Kristie M. Engemann
  • Kevin L. Kliesen
  • Michael T. Owyang

Abstract

Hamilton (2005) noted that nine of the last ten recessions in the United States were preceded by a substantial increase in the price of oil. In this paper, we consider whether oil price shocks significantly increase the probability of recessions in a number of countries. Because business cycle turning points generally are not available for other countries, we estimate the turning points together with oil's effect in a Markov-switching model with time-varying transition probabilities. We find that, for most countries, oil shocks do affect the likelihood of entering a recession. In particular, an average sized shock to oil prices increases the probability of recession in the U.S. by about 60 percentage points over the following year.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://research.stlouisfed.org/wp/2010/2010-007.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2010-007.

as in new window
Length:
Date of creation: 2010
Date of revision:
Handle: RePEc:fip:fedlwp:2010-007

Contact details of provider:
Postal: P.O. Box 442, St. Louis, MO 63166
Fax: (314)444-8753
Web page: http://www.stlouisfed.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Business cycles ; Petroleum industry and trade;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gordon, S.F. & Filardo, A.J., 1993. "Business Cycle Durations," Papers, Laval - Recherche en Politique Economique 9328, Laval - Recherche en Politique Economique.
  2. Kevin L. Kliesen, 2008. "Oil and the U.S. macroeconomy: an update and a simple forecasting exercise," Working Papers, Federal Reserve Bank of St. Louis 2008-009, Federal Reserve Bank of St. Louis.
  3. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
  4. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?," Working Papers, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research 0711, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  5. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 221-222, October.
  6. Kilian, Lutz, 2005. "Exogenous Oil Supply Shocks: How Big Are They and How Much do they Matter for the US Economy?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5131, C.E.P.R. Discussion Papers.
  7. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-25, C.V. Starr Center for Applied Economics, New York University.
  8. Francis X. Diebold & Glenn Rudebusch & Daniel Sichel, 1993. "Further Evidence on Business-Cycle Duration Dependence," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 255-284 National Bureau of Economic Research, Inc.
  9. G. Peersman & I. Van Robays & -, 2009. "Cross-Country Differences in the Effects of Oil Shocks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 09/629, Ghent University, Faculty of Economics and Business Administration.
  10. David C. Wheelock & Mark E. Wohar, 2009. "Can the term spread predict output growth and recessions? a survey of the literature," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 419-440.
  11. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6559, C.E.P.R. Discussion Papers.
  12. Lutz Kilian, 2008. "A Comparison of the Effects of Exogenous Oil Supply Shocks on Output and Inflation in the G7 Countries," Journal of the European Economic Association, MIT Press, MIT Press, vol. 6(1), pages 78-121, 03.
  13. Geweke, John & Keane, Michael, 2007. "Smoothly mixing regressions," Journal of Econometrics, Elsevier, Elsevier, vol. 138(1), pages 252-290, May.
  14. John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers 1982-01, University of Adelaide, School of Economics.
  15. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1.
  16. 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, Blackwell Publishing, vol. 36(2), pages 287-91, April.
  17. Lutz Kilian, 2009. "Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks," 2009 Meeting Papers, Society for Economic Dynamics 473, Society for Economic Dynamics.
  18. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(2), pages 265-86, April.
  19. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, Elsevier, vol. 1(1), pages 3-15, March.
  20. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
  21. Margaret McConnell & Gabriel Perez Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  22. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
  23. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(3), pages 299-308, July.
  24. Hans-Martin Krolzig & Michael P. Clements, 2002. "Can oil shocks explain asymmetries in the US Business Cycle?," Empirical Economics, Springer, Springer, vol. 27(2), pages 185-204.
  25. Chang-Jin Kim & James Morley & Jeremy Piger, 2003. "Nonlinearity and the permanent effects of recessions," Working Papers, Federal Reserve Bank of St. Louis 2002-014, Federal Reserve Bank of St. Louis.
  26. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
  27. G. Peersman & I. Van Robays, 2009. "Oil and the Euro Area Economy," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 09/582, Ghent University, Faculty of Economics and Business Administration.
  28. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(2), pages 193-213, May.
  29. Victor Zarnowitz, 1992. "Business Cycles: Theory, History, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number zarn92-1.
  30. James Morley & Jeremy Piger, 2012. "The Asymmetric Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 208-221, February.
  31. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(2), pages 201-228.
  32. Peter Temin, 1998. "Causes of American business cycles: an essay in economic historiography," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 37-64.
  33. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 215-220, October.
  34. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 38(2), pages 195-213, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Luciana Juvenal & Ivan Petrella, 2012. "Speculation in the oil market," Economic Synopses, Federal Reserve Bank of St. Louis.
  2. Kristie M. Engemann & Michael T. Owyang & Howard J. Wall, 2011. "Where is an oil shock?," Working Papers, Federal Reserve Bank of St. Louis 2011-016, Federal Reserve Bank of St. Louis.
  3. Fornari, Fabio & Lemke, Wolfgang, 2010. "Predicting recession probabilities with financial variables over multiple horizons," Working Paper Series, European Central Bank 1255, European Central Bank.
  4. Dhaoui, Abderrazak & Khraief, Naceur, 2014. "Empirical linkage between oil price and stock market returns and volatility: Evidence from international developed markets," Economics Discussion Papers 2014-12, Kiel Institute for the World Economy.
  5. Claudio Morana, 2012. "The Oil price-Macroeconomy Relationship since the Mid- 1980s: A global perspective," Working Papers 2012.28, Fondazione Eni Enrico Mattei.
  6. Hamilton, James D., 2011. "Nonlinearities And The Macroeconomic Effects Of Oil Prices," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 15(S3), pages 364-378, November.
  7. John C Bluedorn & Jörg Decressin & Marco Terrones, 2013. "Do Asset Price Drops Foreshadow Recessions?," IMF Working Papers 13/203, International Monetary Fund.
  8. James D. Hamilton, 2012. "Oil Prices, Exhaustible Resources, and Economic Growth," NBER Working Papers 17759, National Bureau of Economic Research, Inc.
  9. Cunado, Juncal & Perez de Gracia, Fernando, 2014. "Oil price shocks and stock market returns: Evidence for some European countries," Energy Economics, Elsevier, Elsevier, vol. 42(C), pages 365-377.
  10. Buchmann, Marco, 2011. "Corporate bond spreads and real activity in the euro area - Least Angle Regression forecasting and the probability of the recession," Working Paper Series, European Central Bank 1286, European Central Bank.
  11. Ano Sujithan, Kuhanathan & Koliai, Lyes & Avouyi-Dovi, Sanvi, 2013. "Does Monetary Policy Respond to Commodity Price Shocks?," Economics Papers from University Paris Dauphine 123456789/11718, Paris Dauphine University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2010-007. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.