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- Oil and the macroeconomy: A quantitative structural analysis
with Andrea Nobili, Revised version, Dec. 2008
Abstract: We consider an economy where the cost of the oil input, industrial production, and other macroeconomic variables fluctuate in response to fundamental demand and supply shocks generated domestically and in the world economy. We estimate the effects of these structural shocks using robust sign restrictions suggested by theory using US monthly data for the 1973.1-2007.12 period.
It is shown that the interplay between the oil market and the US economy goes in both ways. On the one hand, about 20\% of fluctuations in the cost of oil arise in response to US aggregate demand shocks. On the other hand, shocks originated in the oil market affect the US economy, in a way which depends on the nature of the shock: a negative oil-supply reduces production, while positive oil-demand shock have a positive and persistent effect on production.