Oil, Automobiles, and the U.S. Economy: How Much Have Things Really Changed?

54 Pages Posted: 14 Jun 2010 Last revised: 9 Jul 2010

See all articles by Valerie A. Ramey

Valerie A. Ramey

University of California at San Diego; National Bureau of Economic Research (NBER)

Daniel J. Vine

Board of Governors of the Federal Reserve System

Date Written: June 2010

Abstract

This paper studies the impact of oil shocks on the U.S. economy--and on the motor vehicle industry in particular--and re-examines whether the relationship has changed over time. We find remarkable stability in the response of aggregate real variables to oil shocks once we account for the extra costs imposed on the economy in the 1970s by price controls and a complex system of entitlements that led to some rationing and shortages. To investigate further why the response of real variables to oil shocks has not declined over time, we focus on the motor vehicle industry, which is considered the most important channel through which oil shocks affect the economy. We find that, contrary to common perceptions, the share of motor vehicles in total U.S. goods production has shown little decline over time. Moreover, within the motor vehicle industry, the effects of oil shocks on the mix of vehicle sold and on capacity utilization appear to have been proportional in recent decades to the effects observed in the 1970s.

Suggested Citation

Ramey, Valerie A. and Vine, Daniel J., Oil, Automobiles, and the U.S. Economy: How Much Have Things Really Changed? (June 2010). NBER Working Paper No. w16067. Available at SSRN: https://ssrn.com/abstract=1624108

Valerie A. Ramey (Contact Author)

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-2388 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel J. Vine

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Mail Stop 82
Washington, DC 20551
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
20
Abstract Views
416
PlumX Metrics