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Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies

Author

Listed:
  • Arlan Brucal

    (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science)

  • Michael J. Roberts

    (Department of Economics, University of Hawaii at Manoa; UHERO; Sea Grant at University of Hawaii at Manoa)

Abstract

Using a sample of 48 contiguous U.S. states for the period 1973-2013, we study how oil price shocks influence state-level economic growth. The analysis incorporates (1) a structural decomposition of the supply and demand factors that drive the real price of crude oil; (2) heterogeneity of states in terms of their production and consumption of oil and natural gas; and (3) economic spillovers across neighboring states. Oil price effects vary across states, depending on the underlying source of the price shock and a state's average production of oil relative to its average consumption. Oil-exporting states are more vulnerable to unanticipated changes in oil prices, and the direct effect of oil price shocks can magnify or temper effects on neighboring states. Aggregated predictions from the state-level model also differ modestly from stand-alone aggregate model (Kilian, 2009). The aggregated state-level model implies that the recent (2005-2016) decline in U.S. dependence on foreign oil reduced aggregate sensitivity to exogenous supply shocks by more than a third.

Suggested Citation

  • Arlan Brucal & Michael J. Roberts, 2018. "Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies," Working Papers 2018-4, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
  • Handle: RePEc:hae:wpaper:2018-4
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    References listed on IDEAS

    as
    1. Carlino, Gerald A. & Inman, Robert P., 2013. "Local deficits and local jobs: Can US states stabilize their own economies?," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 517-530.
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    More about this item

    Keywords

    Oil price shocks; economic spillovers; dynamic;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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