Oil Prices, Profits, and Recessions: An Inquiry Using Terrorism as an Instrumental Variable

Natalie Chen, Liam Graham and Andrew Oswald
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Liam Graham: University College London

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: Nearly all post-war recessions have been preceded by oil-price shocks, but is this because spikes in the price of petroleum cause economic downturns? Most research has ignored an identification problem : oil prices and the state of the world economy are endogenously determined. This paper uses terrorist incidents as an instrumental variable. In an international panel of industries, we show that after correction for simultaneity bias — though not before — the price of oil has large negative effects upon profitability. Our results seem to lend support to the claim that oil-price spikes can be a source of recessions.

Pages: 32 pages
Date: 2007
New Economics Papers: this item is included in nep-ene
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Working Paper: Oil Prices, Profits, and Recessions: An Inquiry Using Terrorism as an Instrumental Variable (2008)
Working Paper: Oil Prices, Profits, and Recessions: An Inquiry Using Terrorism as an Instrumental Variable (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:809

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