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Reassessing the U.S. Economy’s Vulnerability to Oil Shocks

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Abstract

The impact of today’s oil price shocks may differ markedly from those of shocks in the 1970s. As noted in the minutes of the April 28–29, 2026, Federal Open Market Committee meeting, two structural changes to the U.S. economy could cushion the impact: the substantial increase in domestic oil production and the declining share of spending devoted to energy. This brief examines empirical evidence on how these transformations have altered the U.S. economy’s vulnerability to oil shocks.

Suggested Citation

  • Danilo Leiva-León & Giovanni P. Olivei & Ara Patvakanian & Egon Zakrajšek, 2026. "Reassessing the U.S. Economy’s Vulnerability to Oil Shocks," Current Policy Perspectives 26-5, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:103365
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    References listed on IDEAS

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    1. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    2. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
    3. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
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    Keywords

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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