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What is an Oil Shock?

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James D. Hamilton

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Abstract

This paper uses a flexible approach to characterize the nonlinear relation between oil price changes and GDP growth. The paper reports clear evidence of nonlinearity, consistent with earlier claims in the literature-- oil price increases are much more important than oil price decreases, and increases have significantly less predictive content if they simply correct earlier decreases. An alternative interpretation is suggested based on estimation of a linear functional form using exogenous disruptions in petroleum supplies as instruments. The evidence suggests that oil shocks matter because they disrupt spending by consumers and firms on certain key sectors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7755.

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Date of creation: Jun 2000
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Handle: RePEc:nbr:nberwo:7755

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E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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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.:
  1. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June. [Downloadable!] (restricted)
  2. James D. Hamilton, 1985. "Historical Causes of Postwar Oil Shocks and Recessions," The Energy Journal, International Association for Energy Economics, vol. 6(1), pages 97-116.
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This page was last updated on 2009-11-21.

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