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Oil price shocks and U.S. economic activity

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  • Herrera, Ana María
  • Karaki, Mohamad B.
  • Rangaraju, Sandeep Kumar

Abstract

Our understanding of the sources of oil price fluctuations and their effects on the U.S. economy has undergone important transformations in the last decades. First, several studies have demonstrated the importance of identifying the causes of oil price fluctuations, whether they are driven by demand or supply shocks, instead of assuming that oil price changes are exogenous to the evolution of the world's economic activity. Second, new methodologies have allowed researchers to re-evaluate the functional form of the relationship between oil prices and U.S. GDP, its components and job flows. Third, significant advances have been made in understanding the relationship between oil price uncertainty, news, economic policy uncertainty and aggregate economic activity. Finally, investigations into the time-varying nature of oil price-macroeconomy relationship have provided important insights into the reasons why unexpected increases in oil prices appear to shock less now than in the 1970s. This paper reviews the studies that have contributed to these different aspects of the literature.

Suggested Citation

  • Herrera, Ana María & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2019. "Oil price shocks and U.S. economic activity," Energy Policy, Elsevier, vol. 129(C), pages 89-99.
  • Handle: RePEc:eee:enepol:v:129:y:2019:i:c:p:89-99
    DOI: 10.1016/j.enpol.2019.02.011
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    References listed on IDEAS

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    Keywords

    Oil prices; Economic activity; Transmission channels; Supply; Demand; Asymmetries;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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