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American Economic Journal: Macroeconomics: Vol. 5 No. 4 (October 2013)

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

Article Citation

Baumeister, Christiane, and Gert Peersman. 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy." American Economic Journal: Macroeconomics, 5(4): 1-28.

DOI: 10.1257/mac.5.4.1

Abstract

Using time-varying BVARs, we find a substantial decline in the shortrun 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.

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Authors

Baumeister, Christiane (Bank of Canada)
Peersman, Gert (Ghent U)

JEL Classifications

E31: Price Level; Inflation; Deflation
E32: Business Fluctuations; Cycles
Q41: Energy: Demand and Supply
Q43: Energy and the Macroeconomy

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