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What do we know about oil prices and state economic performance
| Content Provider | Semantic Scholar |
|---|---|
| Author | Penn, David A. |
| Copyright Year | 2006 |
| Abstract | During the past two decades a number of studies have explored the effect of oil prices on the national economy, concluding that oil prices and aggregate measures such as output or employment are negatively related: that is, rising oil prices cause the economy to slow, while falling oil prices stimulate the economy.1 More recent research on this matter, however, shows that since the mid-1980s the connection from oil prices to economic activity has changed; current thinking by economist is that rising oil prices generate a negative impact on aggregate economic activity, but falling prices have little effect (Hamilton, 2003). What is more, oil price R ecent gasoline price increases have caused significant economic heartburn for households, energy-sensitive businesses, and transportation-sensitive government agencies. Households that loaded up on gas-guzzling sport utility vehicles when gasoline prices were low are now especially feeling the pinch in their pocketbooks. Transportationintensive businesses such as airlines, delivery, and trucking have been hit hard by fuel price increases, with limited ability to pass cost increases on to customers. School systems that transport large numbers of students to and from school have been hit hard, as have state and local highway departments that depend heavily on petroleum-derived asphalt for road construction and maintenance. Rising gasoline prices have forced households, businesses, and governments to adjust by consuming less energy or spending less on everything else. High gasoline prices have changed vehicle buying preferences, with sales of large SUVs down about 6 percent from last year. Clearly, higher gasoline prices have changed household (and probably business and government) spending habits. The issue for this study is this: The persistent rise of oil and gasoline prices during the past few years raises the issue of the effect of oil prices on the aggregate economy. Recent research shows that oil prices have an asymmetric effect: Rising prices have a measurable negative impact on aggregate economic activity, but falling prices do not have a commensurate positive impact. This study examines the effect of oil price changes on the states of the Eighth Federal Reserve District, using various measures of oil price increases. The study finds that some states are more sensitive to oil price changes than others. The study also finds only limited support for the asymmetry hypothesis at the state level. (JEL R11, Q43) |
| Starting Page | 131 |
| Ending Page | 139 |
| Page Count | 9 |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://files.stlouisfed.org/files/htdocs/publications/red/2006/02/Penn.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
