The Economic Effects of Energy Price Shocks
Journal of Economic Literature
no. 4, December 2008
Large fluctuations in energy prices have been a distinguishing characteristic of the
U.S. economy since the 1970s. Turmoil in the Middle East, rising energy prices in
the United States, and evidence of global warming recently have reignited interest
in the link between energy prices and economic performance. This paper addresses
a number of the key issues in this debate: What are energy price shocks and where
do they come from? How responsive is energy demand to changes in energy prices?
How do consumer’s expenditure patterns evolve in response to energy price shocks?
How do energy price shocks affect U.S. real output, inflation, and stock prices? Why
do energy price increases seem to cause recessions but energy price decreases do not
seem to cause expansions? Why has there been a surge in the price of oil in recent
years? Why has this new energy price shock not caused a recession so far? Have the
effects of energy price shocks waned since the 1980s and, if so, why? As the paper
demonstrates, it is critical to account for the endogeneity of energy prices and to differentiate
between the effects of demand and supply shocks in energy markets when
answering these questions.
"The Economic Effects of Energy Price Shocks."
Journal of Economic Literature,
Price Level; Inflation; Deflation
Business Fluctuations; Cycles
Energy: Demand and Supply