from Energy, Security, and Climate and Energy Security and Climate Change Program

An Update to the EIA’s 2006 Survey of Estimates of the Effect of Oil Prices on the U.S. Economy

December 28, 2012

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Various studies try to quantitatively relate real U.S. GDP growth, employment growth, and changes in consumer price levels to oil prices. For those of you who work on modeling these relationships, here’s an updated survey of studies in the public domain conducted over the last decade or so about how an oil price increase affects real U.S. GDP and the GDP price deflator. I’m putting these data together for some related work I’m doing here at CFR.

Impact on real GDP Impact on inflation
Study Approach Type of Price Increase Year 1 Year 2 Year 1 Year 2
Carabenciov   et al. (2008), IMF Macro-   econometric model (Permanent)   10% increase -0.20 0.27
Barell   and Pomwerantz (2004), NIESR NiGEM   Macro- econometric model (Permanent)   $10 increase -0.2 -0.48 0.3 0.52
OECD   Global Model, Hervé et al. (2010) Macro-   econometric model (Permanent)   $10 increase -0.31 0.41
Jimenez-Rodriguez   and Sanchez (2004), ECB Vector   autoregression (VAR) Impulse   response to a 1% oil price shock^ -0.05 -0.05
Global   Insight, Inc. (2005) Macro-econometric   model (Permanent) $10   increase -0.3 -0.6 0.2 0.5
U.S.   Federal Reserve Bank (1999) FRB/US   macroeconomic model (Permanent) $10   increase -0.2 -0.4 0.5 0.3
^   Accumulated response of GDP growth to a 1% oil price shock, asymmetric case
Other sources:   OECD, U.S. EIA

The impacts to the given price increase are measured in terms of percentage deviation from the baseline in percentage terms in years 1 and 2. Of course, these studies do not provide a perfect apples-to-apples comparison, so I’ve specified tried to specify the approach used in each case, the type of price increase modeled, as well as the year the results were obtained.

By the way, for those interested, here are three older surveys useful as references: the EIA’s 2006 Annual Energy Outlook, a 2005 Stanford study run by Hillard Huntington, and the May 2012 OECD Economic Outlook.

You’ll see that these models tend to gauge the effect of a permanent price increase. Anyone have a sense of the best studies out there based on a shorter-term price shock?

Also, if there are any notable studies out there that these surveys omit, let me know and I’ll post about it so others can find them.