Do oil shocks drive business cycles? some U.S. and international evidence

Kristie Engemann, Kevin Kliesen and Michael Owyang

No 2010-007, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Hamilton (2005) noted that nine of the last ten recessions in the United States were preceded by a substantial increase in the price of oil. In this paper, we consider whether oil price shocks significantly increase the probability of recessions in a number of countries. Because business cycle turning points generally are not available for other countries, we estimate the turning points together with oil's effect in a Markov-switching model with time-varying transition probabilities. We find that, for most countries, oil shocks do affect the likelihood of entering a recession. In particular, an average sized shock to oil prices increases the probability of recession in the U.S. by about 60 percentage points over the following year.

Keywords: Business cycles; Petroleum industry and trade (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-bec, nep-cba, nep-ene and nep-mac
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Citations: View citations in EconPapers (21)

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Journal Article: DO OIL SHOCKS DRIVE BUSINESS CYCLES? SOME U.S. AND INTERNATIONAL EVIDENCE (2011)
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