Oil Price Shocks and U.S. Economic Activity: An International Perspective

40 Pages Posted: 25 Jul 2010

See all articles by Nathan S. Balke

Nathan S. Balke

Southern Methodist University (SMU) - Department of Economics; Federal Reserve Bank of Dallas - Research Department

Stephen P. A. Brown

Resources for the Future

Mine Yücel

Federal Reserve Bank of Dallas

Date Written: July 23, 2010

Abstract

Oil price shocks are thought to have played a prominent role in U.S. economic activity. In this paper, we employ Bayesian methods with a dynamic stochastic general equilibrium model of world economic activity to identify the various sources of oil price shocks and economic fluctuation and to assess their effects on U.S. economic activity. We find that changes in oil prices are best understood as endogenous. Oil price shocks in the 1970s and early 1980s and the 2000s reflect differing mixes of shifts in oil supply and demand, and differing sources of oil price shocks have differing effects on economic activity. We also find that U.S. output fluctuations owe mostly to domestic shocks, with productivity shocks contributing to weakness in the 1970s and 1980s and strength in the 2000s.

Keywords: oil price, international business cycles, general equilibrium, Bayesian estimation

JEL Classification: C3, E3, Q43

Suggested Citation

Balke, Nathan S. and Brown, Stephen P. A. and Yucel, Mine Kuban, Oil Price Shocks and U.S. Economic Activity: An International Perspective (July 23, 2010). Available at SSRN: https://ssrn.com/abstract=1647807 or http://dx.doi.org/10.2139/ssrn.1647807

Nathan S. Balke

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-2693 (Phone)
214-768-1821 (Fax)

Federal Reserve Bank of Dallas - Research Department

PO Box 655906
Dallas, TX 75265-5906
United States

Stephen P. A. Brown (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202 328 5058 (Phone)

Mine Kuban Yucel

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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