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Declining Effects of Oil-Price Shocks

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Output responses to oil-price shocks not only tend to be weaker, but also to peak earlier recently. This paper builds a model that incorporates a realistic structure of US petroleum consumption and explores three possible explanations for the changes. The rst is based on deregulation in the transportation sector, which has brought more competition and improved eciency in the industry. The second is overall improve- ments in use of energy. The third is less persistence of the oil-price shock. Under realistic parameter values, it is demonstrated that all three factors play an important role quantitatively. These three factors together could account for a 51% reduction in the peak response of output to an oil-price shock.

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Paper provided by Department of Economics, Louisiana State University in its series Departmental Working Papers with number 2009-02.

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Handle: RePEc:lsu:lsuwpp:2009-02

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Cited by:
  1. Naohisa Hirakata & Nao Sudo, 2009. "Accounting for Oil Price Variation and Weakening Impact of the Oil Crisis," IMES Discussion Paper Series 09-E-01, Institute for Monetary and Economic Studies, Bank of Japan.

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