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The Macroeconomic Effects of Oil Shocks in the Oil and Non-Oil Producing States

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  • Zeina Alsalman
  • Sandeep Kumar Rangaraju

Abstract

We examine the effect of structural shocks in the crude oil market on the US state-level economic activity in slack and non-slack periods, using linear and state-dependent models. We find that oil supply shocks produce a persistent and significant drop in employment, while the decline in personal income appears ten quarters after the shock. In contrast, economic activity shocks lead to a substantial and consistent increase in employment and personal income. Analyzing these responses across oil and non-oil producing states, we observe that non-oil states are more sensitive to the state of the economy, particularly in response to oil supply shocks. Further analysis shows that variations in the dynamic responses across states exhibit a regional pattern. To identify the factors contributing to these variations between states, we regress the responses on a set of state-level covariates. Our results show that industry composition and demographic factors, including educational attainment and income concentration, shape states’ sensitivity to oil shocks, underscoring the role of economic structure in mediating the effects of oil price fluctuations. JEL Classification: E32 Business Fluctuations; Cycles

Suggested Citation

  • Zeina Alsalman & Sandeep Kumar Rangaraju, 2026. "The Macroeconomic Effects of Oil Shocks in the Oil and Non-Oil Producing States," The Energy Journal, , vol. 47(2), pages 255-288, March.
    • Handle: RePEc:sae:enejou:v:47:y:2026:i:2:p:255-288
    DOI: 10.1177/01956574251399526
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    References listed on IDEAS

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    1. Ana María Herrera & Sandeep Kumar Rangaraju, 2020. "The effect of oil supply shocks on US economic activity: What have we learned?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(2), pages 141-159, March.
    2. 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 1053-1069, June.
    3. Kilian, Lutz, 2024. "How to construct monthly VAR proxies based on daily surprises in futures markets," Journal of Economic Dynamics and Control, Elsevier, vol. 168(C).
    4. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    5. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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