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Time-Varying Effects of Oil Supply Shocks on the US Economy †

Time-Varying Effects of Oil Supply Shocks on the US Economy † Abstract Using time-varying BVARs, we find a substantial decline in the short-run price elasticity of oil demand since the mid-1980s. This finding helps explain why an oil production shortfall of the same magnitude is associated with a stronger response of oil prices and more severe macroeconomic consequences over time, while a similar oil price increase is associated with smaller output effects. Oil supply shocks also account for a smaller fraction of real oil price variability in more recent periods, in contrast to oil demand shocks. The overall effects of oil supply disruptions on the US economy have, however, been modest. (JEL E31, E32, Q41, Q43 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Time-Varying Effects of Oil Supply Shocks on the US Economy †

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Publisher
American Economic Association
Copyright
Copyright © 2013 by the American Economic Association
Subject
Articles
ISSN
1945-7715
eISSN
1945-7715
DOI
10.1257/mac.5.4.1
Publisher site
See Article on Publisher Site

Abstract

Abstract Using time-varying BVARs, we find a substantial decline in the short-run price elasticity of oil demand since the mid-1980s. This finding helps explain why an oil production shortfall of the same magnitude is associated with a stronger response of oil prices and more severe macroeconomic consequences over time, while a similar oil price increase is associated with smaller output effects. Oil supply shocks also account for a smaller fraction of real oil price variability in more recent periods, in contrast to oil demand shocks. The overall effects of oil supply disruptions on the US economy have, however, been modest. (JEL E31, E32, Q41, Q43 )

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2013

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