Comovement of oil prices with US economic indicators over the business cycle: facts and explanations

Yazid Dissou and Lilia Karnizova

No E1401E, Working Papers from University of Ottawa, Department of Economics

Abstract: Empirical industry-level studies find a systematic pattern of output and price responses to variations in oil prices. This pattern depends on the energy-intensity of production and on the origin of oil price shocks. We build a multisector business cycle model that features endogenous production of oil, multiple sources of oil price movements and intersectoral input-output linkages. The model explains the observed sectoral heterogeneity in output and price responses to oil prices changes, previously emphasized by empirical studies. In addition, we show that accounting for the sectoral linkages helps amplify the predicted effects of oil price changes at the aggregate level.

Keywords: oil price; multiple sectors; business cycle; industry effects (search for similar items in EconPapers)
JEL-codes: D57 E32 E37 Q43 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2014
New Economics Papers: this item is included in nep-ene and nep-mac
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