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Where is an oil shock?

  • Kristie M. Engemann
  • Michael T. Owyang
  • Howard J. Wall

Much of the literature examining the effects of oil shocks asks the question “What is an oil shock?” and has concluded that oil-price increases are asymmetric in their effects on the US economy. That is, sharp increases in oil prices affect economic activity adversely, but sharp decreases in oil prices have no effect. We reconsider the directional symmetry of oil-price shocks by addressing the question Where is an oil shock? , the answer to which reveals a great deal of spatial/directional asymmetry across states. Although most states have typical responses to oil-price shocks—they are affected by positive shocks only—the rest experience either negative shocks only (5 states), both positive and negative shocks (5 states), or neither shock (5 states).

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2011-016.

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Date of creation: 2011
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Handle: RePEc:fip:fedlwp:2011-016
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  1. James D. Hamilton & Michael T. Owyang, 2009. "The propagation of regional recessions," Working Papers 2009-013, Federal Reserve Bank of St. Louis.
  2. Stephen P.A. Brown & Mine K. Yücel, 1995. "Energy prices and state economic performance," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 13-23.
  3. 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.
  4. Apostolos Serletis, 2012. "Oil Price Uncertainty," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8407, December.
  5. Gerald Carlino & Robert DeFina, 1997. "The differential regional effects of monetary policy: evidence from the U.S. States," Working Papers 97-12, Federal Reserve Bank of Philadelphia.
  6. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
  7. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-44, June.
  8. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, vol. 2(3), pages 419-453, November.
  9. Michael T. Owyang & Jeremy Piger & Howard J. Wall, 2005. "Business Cycle Phases in U.S. States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 604-616, November.
  10. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
  11. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  12. Olivier J. Blanchard & Marianna Riggi, 2009. "Why are the 2000s so different from the 1970s? A structural interpretation of changes in the macroeconomic effects of oil prices," NBER Working Papers 15467, National Bureau of Economic Research, Inc.
  13. 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.
  14. Steven J. Davis & Prakash Lougani & Ramamohan Mahidhara, 1997. "Regional Labor Fluctuations: Oil Shocks, Military Spending, and Other Driving Forces," JCPR Working Papers 4, Northwestern University/University of Chicago Joint Center for Poverty Research.
  15. Mark C. Snead, 2009. "Are the energy states still energy states?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 43-68.
  16. Robert Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," NBER Working Papers 10855, National Bureau of Economic Research, Inc.
  17. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  18. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
  19. Theodore M. Crone, 2005. "An Alternative Definition of Economic Regions in the United States Based on Similarities in State Business Cycles," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 617-626, November.
  20. Omowumi Iledare and Williams O. Olatubi, 2004. "The Impact of Changes in Crude Oil Prices and Offshore Oil Production on the Economic Performance of U.S. Coastal Gulf States," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 97-114.
  21. Radha Bhattacharya, 2003. "Sources of variation in regional economies," The Annals of Regional Science, Springer, vol. 37(2), pages 291-302, 05.
  22. David A. Penn, 2006. "What do we know about oil prices and state economic performance?," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 131-139.
  23. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
  24. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
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