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Oil and the U.S. macroeconomy: an update and a simple forecasting exercise

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  • Kevin L. Kliesen

Abstract

Recently, some analysts and economists had warned that the U.S. economy faces a much higher risk of falling into a recession should the price of oil rise to $100 per barrel or more. In February 2008, spot crude oil prices closed above $100 per barrel for the first time ever, and they have since climbed even further. Meanwhile, according to some surveys of economists, there is a high probability that a recession in the United States began in late 2007 or early 2008. Although the findings in this paper are consistent with the view that the U.S. economy has become much less sensitive to large changes in oil prices, a simple forecasting exercise reveals that a permanent increase in the price of crude oil to $150-per barrel-by the end of 2008 would have a significant negative effect on the growth rate of real GDP in the short run. However, the exercise also predicts such an increase in oil prices would have minimal effect on future inflation.

Suggested Citation

  • Kevin L. Kliesen, 2008. "Oil and the U.S. macroeconomy: an update and a simple forecasting exercise," Working Papers 2008-009, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2008-009
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    References listed on IDEAS

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    Cited by:

    1. Engemann, Kristie M. & Kliesen, Kevin L. & Owyang, Michael T., 2011. "Do Oil Shocks Drive Business Cycles? Some U.S. And International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 498-517, November.
    2. Thomas M. Fullerton & Teodulo Soto, 2015. "Oil Shock Impacts on the Borderplex Regional Economy," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 14-26.
    3. Jaime Casassus & Freddy Higuera, 2011. "Stock Return Predictability and Oil Prices," Documentos de Trabajo 406, Instituto de Economia. Pontificia Universidad Católica de Chile..
    4. Gormus, N. Alper & Atinc, Guclu, 2016. "Volatile oil and the U.S. economy," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 62-73.
    5. Jamie Emerson, 2010. "Oil Prices and Economic Activity: A Brief Update," Economics Bulletin, AccessEcon, vol. 30(2), pages 1411-1424.
    6. Sevda Yaprakli & Fatih Kaplan, 2015. "Re-examining of the Turkish Crude Oil Import Demand with Multi-structural Breaks Analysis in the Long Run Period," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 402-407.
    7. Jaime Casassus & Freddy Higuera, 2013. "The Economic Impact of Oil on Industry Portfolios," Documentos de Trabajo 433, Instituto de Economia. Pontificia Universidad Católica de Chile..
    8. Valcarcel, Victor J. & Wohar, Mark E., 2013. "Changes in the oil price-inflation pass-through," Journal of Economics and Business, Elsevier, vol. 68(C), pages 24-42.

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    Keywords

    Petroleum products - Prices ; Economic conditions;

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