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Oil and the Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results
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This paper investigated whether Hamilton's results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls, and they found that the correlation persists in periods of price decline.Abstract:Â
In an important paper, Hamilton (1983) demonstrated a strong correlation between oil price changes and gross national product growth in U.S. data. However, his study pertained to a period in which all the large oil price movements were upward, and thus it left unanswered the question whether the correlation persists in periods of price decline. Moreover, the price variable he used was somewhat distorted by price controls in the 1970s. This note investigates whether Hamilton's results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls. Particular attention is given to the possibility of asymmetric responses to oil price increases and decreases, as suggested in the structural employment literature (Loungani 1986; Davis 1987; Hamilton 1988). Like Hamilton, I based my investigation on the GNP equation in Sims's (1 980b) six-variable quarterly vector autoregressive model,read more
Citations
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Oil price shocks and stock market activity
TL;DR: This article found that after 1986, oil price movements explained a larger fraction of the forecast error variance in real stock returns than do interest rates, and that oil price volatility shocks have asymmetric effects on the economy.
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This is what happened to the oil price-macroeconomy relationship
TL;DR: Many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter as mentioned in this paper, and when one looks at the net increase in oil prices over the year, recent data are consistent with the historical correlation between oil shocks and recessions.
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What is an Oil Shock
TL;DR: This paper used a flexible approach to characterize the nonlinear relation between oil price changes and GDP growth and reported clear evidence of nonlinearity, consistent with earlier claims in the literature that oil price increases are much more important than oil price decreases, and increases have significantly less predictive content if they simply correct earlier decreases.
Journal ArticleDOI
What is an Oil Shock
TL;DR: In this article, the authors used a flexible approach to characterize the nonlinear relation between oil price changes and GDP growth and reported clear evidence of nonlinearity, consistent with earlier claims in the literature that oil price increases are much more important than oil price decreases.
Journal ArticleDOI
Systematic monetary policy and the effects of oil price shocks
TL;DR: The authors developed a VAR-based technique for decomposing the total economic effects of a given exogenous shock into the portion attributable directly to the shock and the part arising from the policy response.
References
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Tests of equality between sets of coefficients in two linear regressions
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Oil and the Macroeconomy since World War II
TL;DR: The authors found that all but one of the U.S. recessions since World War II have been preceded, typically with a lag of around three-fourths of a year, by a dramatic increase in the price of crude petroleum.
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Tests of Equality Between Sets of Coefficients in Two Linear Regressions: An Expository Note
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A Neoclassical Model of Unemployment and the Business Cycle
TL;DR: In this article, a general equilibrium model of unemployment and the business cycle is investigated, in which specialization of labor plays a key role, and a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those without jobs.
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Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered
TL;DR: In this paper, a non-monetarist explanation of the dynamics, based on the role of expectations in investment behavior, seems to fit the estimated dynamics better, which is consistent with a passive role for money, could explain much of the observed postwar relation between money stock and income.