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An international perspective on oil price shocks and U.S. economic activity

Nathan Balke (), Stephen Brown and Mine Yucel

No 20, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: The effect of oil price shocks on U.S. economic activity seems to have changed since the mid-1990s. A variety of explanations have been offered for the seeming change?including better luck, the reduced energy intensity of the U.S. economy, a more flexible economy, more experience with oil price shocks and better monetary policy. These explanations point to a weakening of the relationship between oil prices shocks and economic activity rather than the fundamentally different response that may be evident since the mid-1990s.> ; Using a dynamic stochastic general equilibrium model of world economic activity, we employ Bayesian methods to assess how economic activity responds to oil price shocks arising from supply shocks and demand shocks originating in the United States or elsewhere in the world. We find that both oil supply and oil demand shocks have contributed significantly to oil price fluctuations and that U.S. output fluctuations are derived largely from domestic shocks.

Keywords: Petroleum industry and trade; Petroleum products - Prices; International trade; Economic conditions - United States (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac and nep-opm
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