Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects

Research output: Contribution to journalArticle

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Abstract

This paper considers the macroeconomics of the oil price for the United States. It investigates the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification. The explanatory power of this new specification is compared to that of a number of prominent non-linear specifications. The key findings are: (1) the new oil price specification is appropriate in both empirical and theoretical terms and allows for a well-founded distinction between �large� and �normal� oil price increases. (2) The observed impact of oil price shocks on real GDP growth is largely attributable to no fewer than three large oil price increases, namely those of 1973-74, 1979 and 1991, while variables such as consumer and import prices are also affected by normal oil price increases.
Original languageEnglish
Pages (from-to)151-170
Number of pages20
JournalThe Energy Journal
Volume29
Issue number1
DOIs
Publication statusPublished - 2008

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Specifications
Oil shocks
Incidents
US economy
Oil prices
Oils
Import prices
Consumer prices
Markov switching
Oil price shocks
GDP growth
Real GDP
Macroeconomics

Keywords

  • oil price shocks
  • vector autoregression
  • Granger causality
  • impulse responses
  • Markov-switching
  • non-linear models

Cite this

Large Oil Shocks and the US Economy : Infrequent Incidents with Large Effects. / Gronwald, Marc.

In: The Energy Journal, Vol. 29, No. 1, 2008, p. 151-170.

Research output: Contribution to journalArticle

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