Hostname: page-component-cd9895bd7-q99xh Total loading time: 0 Render date: 2024-12-23T18:21:39.209Z Has data issue: false hasContentIssue false
  • English
  • Français

DO GLOBAL CRUDE OIL MARKET SHOCKS HAVE DIFFERENTIAL EFFECTS ON US REGIONS?

Published online by Cambridge University Press:  07 November 2017

Bebonchu Atems  and
Mark Melichar
Bebonchu Atems*
Affiliation:
Clarkson University
Mark Melichar
Affiliation:
Tennessee Technological University
*
Address correspondence to: Bebonchu Atems, School of Business, Clarkson University, 8 Clarkson Ave, Potsdam, NY 13699, USA; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

The paper investigates whether US regions respond differently to shocks in the crude oil market. We disentangle oil market shocks into distinct demand and supply shocks and examine the response of regional personal income to these shocks. Results indicate that for most regions, oil supply shocks decrease real personal income. Except for the Rocky Mountains and the Southwest, global aggregate demand shocks are recessionary, typically about a year and a half after the shock. When we split our data into oil-producing and non-oil-producing regions, we find that global aggregate demand shocks have no effect on oil-producing regions but cause a decrease in income in non-oil-producing regions. Our analysis further indicates that oil-specific demand shocks have positive and persistent impacts on oil-producing regions but are recessionary in non-oil-producing regions. We also document significant asymmetries in the regional responses to small versus large oil shocks. In addition, the paper shows that regional differences in industrial composition explain some of the variation in the responses of real regional personal income to oil shocks.

Keywords

Oil ShocksReal Personal IncomeUS RegionsVAR Models
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 5 , July 2019 , pp. 1978 - 2008
Copyright
Copyright © Cambridge University Press 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Atems, Bebonchu, Kapper, Devin, and Lam, Eddery (2015) Do exchange rates respond asymmetrically to shocks in the crude oil market? Energy Economics 49, 227–238.Google Scholar
Bachmeier, Lance (2008) Monetary policy and the transmission of oil shocks. Journal of Macroeconomics 30 (4), 1738–1755.Google Scholar
Bachmeier, Lance and Cha, Inkyung (2011) Why don't oil shocks cause inflation? Evidence from disaggregate inflation data. Journal of Money, Credit and Banking 43 (6), 1165–1183.Google Scholar
Bachmeier, Lance, Li, Qi, and Liu, Dandan (2008) Should oil prices receive so much attention? An evaluation of the predictive power of oil prices for the U.S. economy. Economic Inquiry 46 (4), 528–539.Google Scholar
Basher, Syed Abul, Haug, Alfred A., and Sadorsky, Perry (2012) Oil prices, exchange rates and emerging stock markets. Energy Economics 34 (1), 227–240.Google Scholar
Barsky, Robert B. and Kilian, Lutz (2002) Do we really know that oil caused the great stagflation? A monetary alternative. NBER Macroeconomics Annual 2001 16, 137–198.Google Scholar
Burbidge, John and Harrison, Alan (1984) Testing for the effects of oil-price rises using vector autoregressions. International Economic Review 25 (2), 459–484.Google Scholar
Carlino, Gerald and DeFina, Robert (1998) The differential regional effects of monetary policy. Review of Economics and Statistics 80 (4), 572–587.Google Scholar
Carlino, Gerald and DeFina, Robert (1999) The differential regional effects of monetary policy: Evidence from the U.S. states. Journal of Regional Science 39 (2), 339–358.Google Scholar
Cologni, Alessandro and Manera, Matteo (2009) The asymmetric effects of oil shocks on output growth: A Markov-switching analysis for the G-7 countries. Economic Modelling 26 (1), 1–29.Google Scholar
Cunado, Juncal and de Gracia, Fernando Perez (2003) Do oil price shocks matter? Evidence for some European countries. Energy Economics 25 (2), 137–154.Google Scholar
Davis, Steven and Haltiwanger, John (2001) Sectoral job creation and destruction responses to oil price changes. Journal of Monetary Economics 48, 465–512.Google Scholar
Elliott, Graham, Rothenberg, Thomas J., and Stock, James H. (1996) Efficient tests for an autoregressive unit root. Econometrica 64 (4), 813–836.Google Scholar
Engemann, Kristie M., Owyang, Michael T., and Wall, Howard J. (2014) Where is an oil shock? Journal of Regional Science 54 (2), 169–185.Google Scholar
Gospodinov, Nikolay (2004) Asymptotic confidence intervals for impulse responses of near-integrated processes. Econometrics Journal 7 (2), 505–527.Google Scholar
Guntner, J. (2014) How do international stock markets respond to oil demand and supply shocks? Macroeconomic Dynamics 18 (8), 1657–1682.Google Scholar
Hamilton, James D. (1983) Oil and the macroeconomy since world war II. Journal of Political Economy 91 (2), 228–248.Google Scholar
Hamilton, James D. (1996) This is what happened to the oil price-macroeconomy relationship. Journal of Monetary Economics 38 (2), 215–220.Google Scholar
Hamilton, James D. (2003) What is an oil shock? Journal of Econometrics 113 (2), 363–398.Google Scholar
Hamilton, James D. (2009) Causes and consequences of the oil shock of 2007–08. Brookings Papers on Economic Activity Spring, 215–259.Google Scholar
Hamilton, James D. (2011) Nonlinearities and the macroeconomic effects of oil prices. Macroeconomic Dynamics 15, 364–378.Google Scholar
Hamilton, James D. and Herrera, Ana Maria (2004) Comment: Oil shocks and aggregate macroeconomic behavior: The role of monetary policy. Journal of Money, Credit and Banking 36 (2), 265–286.Google Scholar
Hamilton, James D. and Owyang, Michael T. (2012) The propagation of regional recessions. Review of Economics and Statistics 94 (4), 935–947.Google Scholar
Hansen, Bruce E. (1996) Inference when a nuisance parameter is not identified under the null hypothesis. Econometrica 64, 413–430.Google Scholar
Hansen, Bruce E. (2000) Sample splitting and threshold estimation. Econometrica 68 (3), 575–603.Google Scholar
Herrera, Ana Maria, Lagalo, Latika Gupta, and Wada, Tatsuma (2015) Asymmetries in the response of economic activity to oil price increases and decreases? Journal of International Money and Finance 50, 108–133.Google Scholar
Hooker, Mark (1996) What happened to the oil price-macroeconomy relationship? Journal of Monetary Economics 38, 195–213.Google Scholar
Jimenez-Rodriguez, Rebeca and Sanchez, Marcelo (2005) Oil price shocks and real GDP growth: Empirical evidence for some OECD Countries. Applied Economics 37 (2), 201–228.Google Scholar
Kilian, Lutz (2007) The economic effects of energy price shocks. Journal of Economic Literature 46 (4), 871–909.Google Scholar
Kilian, Lutz (2008a) Exogenous oil supply shocks: How big are they and how much do they matter for the U.S. economy? Review of Economics and Statistics 90 (2), 216–240.Google Scholar
Kilian, Lutz (2008b) A comparison of the effects of exogenous oil supply shocks on output and inflation in the G7 countries. Journal of the European Economic Association 6 (1), 78–121.Google Scholar
Kilian, Lutz (2009) Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review 99 (3), 1053–1069.Google Scholar
Kilian, Lutz and Park, Cheolbeom (2009) The impact of oil price shocks on the U.S. stock market. International Economic Review 50 (4), 1267–1287.Google Scholar
Kilian, Lutz and Vigfusson, Robert J. (2011a) Are the responses of the U.S. economy asymmetric in energy price increases and decreases? Quantitative Economics 2 (3), 419–453.Google Scholar
Kilian, Lutz and Vigfusson, Robert J. (2011b) Nonlinearities in the oil price-output relationship. Macroeconomic Dynamics 15, 337–363.Google Scholar
Kilian, Lutz and Vigfusson, Robert J. (2013) Do oil prices help forecast U.S. real GDP? The role of nonlinearities and asymmetries. Journal of Business & Economic Statistics 31 (1), 78–93.Google Scholar
Krugman, P. and Wells, Robin (2011) Macroeconomics. New York, NY: Worth Publishers.Google Scholar
Lee, Kiseok and Ni, Shawn (2002) On the dynamic effects of oil price shocks: A study using industry level data. Journal of Monetary Economics 49 (4), 823–852.Google Scholar
Lee, Kiseok, Ni, Shawn, and Ratti, Ronald A. (1995) Oil shocks and the macroeconomy: The role of price variability. Energy Journal 16 (4), 39–56.Google Scholar
Lippi, Francesco and Nobili, Andrea (2012) Oil and the macroeconomy: A quantitative structural analysis. Journal of the European Economic Association 10 (5), 1059–1083.Google Scholar
Mankiw, N. G. (2010) Principles of Macroeconomics. Stamford, CT: Cengage Learning Publishers.Google Scholar
Melichar, Mark (2016) Energy price shocks and economic activity: Which energy price series should we be using? Energy Economics 54, 431–443.Google Scholar
Mork, Knut A. (1989) Oil and the macroeconomy when prices go up and down: An extension of Hamilton's results. Journal of Political Economy 97 (3), 740–744.Google Scholar
Owyang, Michael T., Piger, Jeremy, and Wall, Howard J. (2005) Business cycle phases in US states. Review of Economics and Statistics 87 (4), 604–616.Google Scholar
Owyang, Michael T. and Zubairy, Sarah (2013) Who benefits from increased government spending? A state-level analysis. Regional Science and Urban Economics 43 (3), 445–464.Google Scholar
Rasche, Robert H. and Tatom, John A. (1981) Energy price shocks, aggregate supply and monetary policy: The theory and the international evidence. Carnegie-Rochester Conference Series on Public Policy 14, 9–93.Google Scholar