The Crude Oil Market and US Economic Activity: Revisiting the Empirical Evidence

Erkal Ersoy

No 9, CEERP Working Paper Series from Centre for Energy Economics Research and Policy, Heriot-Watt University

Abstract: This paper empirically analyses the relationship between oil prices and real economic activity in the US. We seek to contribute to the literature by reconsidering the measurement of oil prices. We do so by accounting for whether oil price shocks follow periods of quiescence or volatility, since the former oil price changes could be more shocking. This study also accounts for asymmetry of shocks, since both theory and our empirical findings indicate that positive shocks to oil prices have a greater impact on economic activity than negative ones. We implement a rolling window approach in VARs and IRFs to investigate the time-varying nature of the relationship. Based on these, we find no clear evidence of the oil price-macroeconomy relationship weakening over time. There is strong evidence for asymmetry across specifications, proxies, and sample periods. Impulse response analysis suggests that a rise in oil prices is expected to lead to a decline in output growth rate and that this effect is larger in the second half of the dataset.

Keywords: Oil prices; economic activity; time-series econometrics; VAR; IRF (search for similar items in EconPapers)
JEL-codes: C32 E32 Q41 Q43 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2020-11
New Economics Papers: this item is included in nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ceerp.hw.ac.uk/RePEc/hwc/wpaper/009.pdf First version, 2020 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hwc:wpaper:009

Access Statistics for this paper

More papers in CEERP Working Paper Series from Centre for Energy Economics Research and Policy, Heriot-Watt University
Bibliographic data for series maintained by Antonio Carvalho ( this e-mail address is bad, please contact ).