Does uncertainty about oil prices slow down the economy
It's not the latest jump in oil prices that takes a toll on the economy but the uncertainty over what will happen in the future. But getting a handle on such uncertainty is a difficult task.
Reviewing the Oil Price - GDP Growth Relationship: A Replication Study
This paper presents a thorough replication of Hamilton (2003) which in turn replicates and extends the findings of four seminal papers regarding the oil price–GDP growth relationship. Firstly, we replicate the empirical results obtained with the oil price measures of Hamilton (1983), Mork (1989), Lee et al. (1995), Hamilton (1996), and Hamilton (2003) by using an identical data set of real and nominal oil prices. Secondly, we extend the data sets to 2019Q4 and apply the same methodology. We find that for more recent data the explanatory power of the proposed oil price measures on GDP growth rates is still present, albeit on a slightly weaker magnitude. Extending the ARX(4), we only find little evidence that oil price decreases impact GDP growth rates on the full data set. Parameter stability tests suggest that the impact of oil price decreases might be limited to certain periods.
Oil demand in North America: 1980-2020
This paper first analyses price and income elasticity of oil demand in the United States, Canada and Mexico for the period 1980-99. Economic activity is the main driving force that influences oil consumption in each country. Changes in oil consumption generally lagged by a few years before the full impact of changes in oil prices was realized. Consumers in the short run are constrained by technological and other barriers and, therefore, less sensitive to changes in oil prices; however, they are more responsive in the long run — though response is still inelastic. The use of advanced technology facilitated these countries to use less oil over time. The paper then looks at demand over the next 20 years. The best-fitting model predicts that, by the end of 2020 (reference case), the USA, Canada and Mexico will respectively consume 24,900, 2,596 and 2,321 thousand barrels daily, compared with 19,519, 1,943 and 1,970 thousand b/d in 1999. The model forecasts economic slowdown during 2000/2002. The USA and Canada are expected to recover quickly, while Mexico will take longer.