Skip to main content
Review logo

Our most academic publication offers research and surveys on monetary policy, national and international developments, banking, and more. The content is written for an economically informed readership—from the undergraduate student to the PhD.

Vol. 87, No. 6 (Posted 2005-11-01)

Oil Price Volatility and U.S. Macroeconomic Activity

by Hui Guo and Kevin L. Kliesen

Oil shocks exert influence on macroeconomic activity through various channels, many of which imply a symmetric effect. However, the effect can also be asymmetric. In particular, sharp oil price changes—either increases or decreases—may reduce aggregate output temporarily because they delay business investment by raising uncertainty or induce costly sectoral resource reallocation. Consistent with these asymmetric-effect hypotheses, the authors find that a volatility measure constructed using daily crude oil futures prices has a negative and significant effect on future gross domestic product (GDP) growth over the period 1984-2004. Moreover, the effect becomes more significant after oil price changes are also included in the regression to control for the symmetric effect. The evidence here provides economic rationales for Hamilton’s (2003) nonlinear oil shock measure: It captures overall effects, both symmetric and asymmetric, of oil price shocks on output.

Cite this article

Subscribe to our newsletter

Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top