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Comovement of oil prices with US economic indicators over the business cycle: facts and explanations

Author

Listed:
  • Yazid Dissou

    (Department of Economics, University of Ottawa, Ottawa, ON)

  • Lilia Karnizova

    (Department of Economics, University of Ottawa, Ottawa, ON)

Abstract

Empirical industry-level studies find a systematic pattern of output and price responses to variations in oil prices. This pattern depends on the energy-intensity of production and on the origin of oil price shocks. We build a multisector business cycle model that features endogenous production of oil, multiple sources of oil price movements and intersectoral input-output linkages. The model explains the observed sectoral heterogeneity in output and price responses to oil prices changes, previously emphasized by empirical studies. In addition, we show that accounting for the sectoral linkages helps amplify the predicted effects of oil price changes at the aggregate level.

Suggested Citation

  • Yazid Dissou & Lilia Karnizova, 2014. "Comovement of oil prices with US economic indicators over the business cycle: facts and explanations," Working Papers E1401E, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:e1401e
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    More about this item

    Keywords

    oil price; multiple sectors; business cycle; industry effects;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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