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Oil price shocks and U.S. economic activity: an international perspective

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Abstract

Oil price shocks are thought to have played a prominent role in U.S. economic activity. In this paper, we employ Bayesian methods with a dynamic stochastic general equilibrium model of world economic activity to identify the various sources of oil price shocks and economic fluctuation and to assess their effects on U.S. economic activity. We find that changes in oil prices are best understood as endogenous. Oil price shocks in the 1970s and early 1980s and the 2000s reflect differing mixes of shifts in oil supply and demand, and differing sources of oil price shocks have differing effects on economic activity. We also find that U.S. output fluctuations owe mostly to domestic shocks, with productivity shocks contributing to weakness in the 1970s and 1980s and strength in the 2000s.

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  • Nathan S. Balke & Stephen P. A. Brown & Mine K. Yücel, 2010. "Oil price shocks and U.S. economic activity: an international perspective," Working Papers 1003, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:1003
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    1. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
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    1. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    2. Balcilar, Mehmet & Gupta, Rangan & Wohar, Mark E., 2017. "Common cycles and common trends in the stock and oil markets: Evidence from more than 150years of data," Energy Economics, Elsevier, vol. 61(C), pages 72-86.
    3. Turco, Enrico & Bazzana, Davide & Rizzati, Massimiliano & Ciola, Emanuele & Vergalli, Sergio, 2023. "Energy price shocks and stabilization policies in the MATRIX model," Energy Policy, Elsevier, vol. 177(C).
    4. Arnoud Stevens, 2015. "Optimal monetary policy response to endogenous oil price fluctuations," Working Paper Research 277, National Bank of Belgium.
    5. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2014. "Dynamic spillovers of oil price shocks and economic policy uncertainty," Energy Economics, Elsevier, vol. 44(C), pages 433-447.
    6. Garth Heutel, 2012. "How Should Environmental Policy Respond to Business Cycles? Optimal Policy under Persistent Productivity Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 244-264, April.
    7. Simeon Ebechidi & Eleanya K. Nduka, 2017. "Modeling the Impact of Oil Price Shocks on Energy Sector Stock Returns: Evidence from Nigeria," Economics Bulletin, AccessEcon, vol. 37(4), pages 2574-2584.
    8. Gil-Alana, Luis A. & Gupta, Rangan & Olubusoye, Olusanya E. & Yaya, OlaOluwa S., 2016. "Time series analysis of persistence in crude oil price volatility across bull and bear regimes," Energy, Elsevier, vol. 109(C), pages 29-37.
    9. repec:ipg:wpaper:2014-080 is not listed on IDEAS
    10. Tunc, Ahmet & Kocoglu, Mustafa & Aslan, Alper, 2022. "Time-varying characteristics of the simultaneous interactions between economic uncertainty, international oil prices and GDP: A novel approach for Germany," Resources Policy, Elsevier, vol. 77(C).
    11. Enrico Turco & Davide Bazzana & Massimiliano Rizzati & Emanuele Ciola & Sergio Vergalli, 2022. "Energy price shocks and stabilization policies in a multi-agent macroeconomic model for the Euro Area," Working Papers 2022.25, Fondazione Eni Enrico Mattei.
    12. Nikolaos Antonakakis & Ioannis Chatziantoniou & George Filis, 2014. "Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty," Department of Economics Working Papers wuwp166, Vienna University of Economics and Business, Department of Economics.
    13. Martin Bodenstein & Luca Guerrieri, 2011. "Oil efficiency, demand, and prices: a tale of ups and downs," International Finance Discussion Papers 1031, Board of Governors of the Federal Reserve System (U.S.).
    14. Khalil, Makram, 2022. "Oil prices, manufacturing goods, and nontradeable services," Journal of International Economics, Elsevier, vol. 134(C).
    15. Hossein Tavakolian & Hamed Ghiaie, 2019. "Optimal Inflation Targeting in a Dual-Exchange Rate Oil Economy," THEMA Working Papers 2019-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    16. Ghiaie, Hamed & Tabarraei, Hamid Reza & Tavakolian, Hossein, 2022. "Alternative monetary policy regimes in an oil-exporting economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 161-177.
    17. repec:ipg:wpaper:2014-085 is not listed on IDEAS

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    More about this item

    Keywords

    Petroleum products - Prices; Petroleum industry and trade; economic conditions - United States; Business cycles;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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