A Regime-Switching Analysis of the Impact of Oil Price Changes on the Economies of U.S. States
The study employs quarterly data from 1958:I to 2010:IV to analyze how state earnings respond to oil price changes. We allow for asymmetric and nonlinear reactions of state earnings through a smooth regime switching model. Fourteen of the 50 states are best modeled with a two regime model. The response of the remaining states can be adequately captured by a linear least squares model. The estimation results show marked differences among states in both the tolerance and the delay of response to an oil price change. The speed at which the transition occurs across regimes varies significantly by state.
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