Exogenous oil supply shocks: how big are they and how much do they matter for the U.S. economy?

The paper proposes a new measure of exogenous oil supply shocks. The timing, the magnitude, and the sign of this measure may differ greatly from current state-of-the-art estimates. It is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed...

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Bibliographic Details
Published in:The review of economics and statistics 2008-05, Vol.90 (2), p.216-240
Main Author: Kilian, L
Format: Article
Language:English
Subjects:
commodity prices
Consumer Price Index
Contrafactuals
Crude oil prices
demand functions
duration
econometric models
Economic impact
estimation
GDP
Gross Domestic Product
imports
inflation
international trade
Islamic Revolution
Oil price shocks
Oil prices
Oil production
petroleum
Petroleum production
Real gross domestic product
Studies
Supply
Supply shocks
War
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Summary:The paper proposes a new measure of exogenous oil supply shocks. The timing, the magnitude, and the sign of this measure may differ greatly from current state-of-the-art estimates. It is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions. Exogenous oil supply shocks cause a sharp drop of U.S. real GDP growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in CPI inflation after three quarters. Overall, exogenous oil supply shocks made remarkably little difference for the evolution of the U.S. economy since the 1970s, although they did matter for some historical episodes.
ISSN:0034-6535
1530-9142
DOI:10.1162/rest.90.2.216