Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies
Arlan Brucal () and
Michael Roberts ()
No 2018-4, Working Papers from University of Hawaii Economic Research Organization, University of Hawaii at Manoa
Using a sample of 48 contiguous U.S. states for the period 1973-2013, we study how oil price shocks influence state-level economic growth. The analysis incorporates (1) a structural decomposition of the supply and demand factors that drive the real price of crude oil; (2) heterogeneity of states in terms of their production and consumption of oil and natural gas; and (3) economic spillovers across neighboring states. Oil price effects vary across states, depending on the underlying source of the price shock and a state's average production of oil relative to its average consumption. Oil-exporting states are more vulnerable to unanticipated changes in oil prices, and the direct effect of oil price shocks can magnify or temper effects on neighboring states. Aggregated predictions from the state-level model also differ modestly from stand-alone aggregate model (Kilian, 2009). The aggregated state-level model implies that the recent (2005-2016) decline in U.S. dependence on foreign oil reduced aggregate sensitivity to exogenous supply shocks by more than a third.
Keywords: Oil price shocks; economic spillovers; dynamic (search for similar items in EconPapers)
JEL-codes: E32 Q43 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-ene, nep-mac and nep-ure
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Working Paper: Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hae:wpaper:2018-4
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