An Analysis of Oil Price Shocks on the Colorado Economy Using Vector Autoregression

Alok Bohara

The Review of Regional Studies, 1988, vol. 18, issue 3, 23-30

Abstract: This paper analyzes the effects of oil price shocks on the Colorado economy by using the innovation-accounting technique of Sims (1980) to study the channels of influence. The paper demonstrates that a time series model can be used to model a regional economy by integrating both macro and regional factors in a vector autoregression. A six-variable vector autoregression containing three macro variables (real oil price, interest rate and real GNP) and three regional variables (employment, real income, and consumer price index) is analyzed. The oil price variable is found to be exogenous to the entire system, and all three macro variables are exogenous to the local economy. A positive oil price shock has been found to affect RGNP negatively. The influence of oil price shocks on employment and income in Colorado also is negative, meaning that, although it is an oil-producing state, Colorado does not benefit from a higher oil price.

Date: 1988
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