The Economic Effects of Energy Price Shocks

Lutz Kilian

No 6559, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Large fluctuations in energy prices have been a distinguishing characteristic of the U.S. economy since the 1970s. Turmoil in the Middle East, rising energy prices in the U.S. and evidence of global warming recently have reignited interest in the link between energy prices and economic performance. This paper addresses a number of the key issues in this debate: What are energy price shocks and where do they come from? How responsive is energy demand to changes in energy prices? How do consumers? expenditure patterns evolve in response to energy price shocks? How do energy price shocks affect real output, inflation, stock markets and the balance-of-payments? Why do energy price increases seem to cause recessions, but energy price decreases do not seem to cause expansions? Why has there been a surge in gasoline prices in recent years? Why has this new energy price shock not caused a recession so far? Have the effects of energy price shocks waned since the 1980s and, if so, why? As the paper demonstrates, it is critical to account for the endogeneity of energy prices and to differentiate between the effects of demand and supply shocks in energy markets, when answering these questions.

Keywords: Asymmetry; Causality; Channels of transmission; Crude oil; Elasticity; Gasoline; Price shocks; Propagation (search for similar items in EconPapers)
JEL-codes: E21 Q43 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-cba, nep-ene and nep-mac
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Citations: View citations in EconPapers (87)

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Journal Article: The Economic Effects of Energy Price Shocks (2008)
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