bankingintern on oil prices vs the GDP
I've heard two of the authors that wrote this paper speak before, and I've read more than a few of their papers. Overall I think they are pretty straight shooting guys for economists. Their work on natural gas has been VERY interesting.
This is a not quite recent fed paper on the link between energy prices and the economy.
dallasfed.org
My recap: Basically they believe that the link between oil prices and GDP may have weakened over the recent past and this may continue going forward. Their main point is that the GDP/OIL BTU ratio has been falling recently and thus the U.S. uses less oil to produce a $ of GDP. Thus oil prices changes will have LESS of an effect on GDP than in the past. Of course being economists it takes them 19 pages to say this.
Some choice quotes
P2 "Episodes of sharply rising oil prices (shown as the
highlighted portions of oil prices) have preceded nine of
the ten post-World-War II recessions in the United States...Research conducted by James Hamilton (University of California, San Diego) strongly suggests that the recessions that followed sharply rising oil prices were not the result of other business cycle variables, such as aggregate demand shocks or contractionary monetary policy."
Monetary policfy in response to Oil price shocks were discussed in detail if you want, but I found THIS to be intresting
P6 "Similarly, Ben Bernanke, Mark Gertler and Mark Watson (Princeton, New York University, and Princeton, respectively) had an article published in the Brookings Papers on Economic Activity that shows the U.S. economy responds differently to an oil price shock when the federal funds rate is constrained to be constant than in the case in which it is unconstrained. In their unconstrained case, a sharp increase in oil prices leads to a higher federal funds rate and a reduction in real GDP. With the federal funds rate held constant, Bernanke, Gertler and Watson (hereafter BGW) find that an oil price increase leads to an increase in real GDP. Defining neutral monetary policy as holding the federal funds rate constant, BGW find that monetary policy has tightened in response to increased oil prices, and they conclude that this monetary tightening accounts for the
fluctuations in aggregate economic activity." The next paragraph shows the increase bit may be wrong...
And YES that is the Ben Bernanke on the fed... this sugests that with oil prices moving up there may be at least one vote AGAINST raising rates.
P10 "In research published in The Energy Journal, Knut Mork found that when he separated oil price changes into negative and positive oil price changes, oil price increases had more effect on economic activity than oil price decreases."
Those are just a few bits, but the paper is a good read if your into the topic. |
