IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v13y2020i10p2603-d360883.html
   My bibliography  Save this article

The Response of US Macroeconomic Aggregates to Price Shocks in Crude Oil vs. Natural Gas

Author

Listed:
  • Jin Shang

    (Graduate School of Economics, Kobe University 2-1, Rokkodai, Nada-Ku, Kobe 657-8501, Japan)

  • Shigeyuki Hamori

    (Graduate School of Economics, Kobe University 2-1, Rokkodai, Nada-Ku, Kobe 657-8501, Japan)

Abstract

Price fluctuations in crude oil and natural gas, as important sources of energy, have a remarkable influence on our economies and daily lives. Therefore, it is extremely important to react appropriately and to formulate appropriate policies or strategies to reduce the expected negative effects of fluctuations. However, as Kilian suggested, not all oil price shocks are similar; price increases can have diverse impacts on the real price of oil, depending on the underlying determinants of the price fluctuation. Therefore, economists, policymakers, and investors need to decompose real price shocks and evaluate the responses of macroeconomic aggregates to different types of shocks. In this study, we investigate and compare the different effects crude oil and natural gas price shocks have on US real GDP and CPI levels, utilizing a two-stage method based on a structural vector autoregression (SVAR) model proposed by Kilian. We found that a crude oil specific demand shock made larger contributions to the real price of oil than a natural gas specific demand shock did to the real price of gas, and that specific demand shocks in crude oil and natural gas markets had different effects on US CPI inflation and had similar effects on the real US GDP level.

Suggested Citation

  • Jin Shang & Shigeyuki Hamori, 2020. "The Response of US Macroeconomic Aggregates to Price Shocks in Crude Oil vs. Natural Gas," Energies, MDPI, vol. 13(10), pages 1-17, May.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:10:p:2603-:d:360883
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/13/10/2603/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/13/10/2603/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    2. Oladosu, Gbadebo A. & Leiby, Paul N. & Bowman, David C. & Uría-Martínez, Rocio & Johnson, Megan M., 2018. "Impacts of oil price shocks on the United States economy: A meta-analysis of the oil price elasticity of GDP for net oil-importing economies," Energy Policy, Elsevier, vol. 115(C), pages 523-544.
    3. Jadidzadeh, Ali & Serletis, Apostolos, 2017. "How does the U.S. natural gas market react to demand and supply shocks in the crude oil market?," Energy Economics, Elsevier, vol. 63(C), pages 66-74.
    4. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    5. Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
    6. van de Ven, Dirk Jan & Fouquet, Roger, 2017. "Historical energy price shocks and their changing effects on the economy," Energy Economics, Elsevier, vol. 62(C), pages 204-216.
    7. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
    8. Sim, Nicholas & Zhou, Hongtao, 2015. "Oil prices, US stock return, and the dependence between their quantiles," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 1-8.
    9. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    10. Nick, Sebastian & Thoenes, Stefan, 2014. "What drives natural gas prices? — A structural VAR approach," Energy Economics, Elsevier, vol. 45(C), pages 517-527.
    11. Ali Ahmed, Huson Joher & Wadud, I.K.M. Mokhtarul, 2011. "Role of oil price shocks on macroeconomic activities: An SVAR approach to the Malaysian economy and monetary responses," Energy Policy, Elsevier, vol. 39(12), pages 8062-8069.
    12. Yasunori Yoshizaki & Shigeyuki Hamori, 2013. "On the Influence of Oil Price Shocks on Economic Activity, Inflation, and Exchange Rates," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 4(2), pages 33-41, April.
    13. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
    14. Ju, Keyi & Su, Bin & Zhou, Dequn & Wu, Junmin & Liu, Lifan, 2016. "Macroeconomic performance of oil price shocks: Outlier evidence from nineteen major oil-related countries/regions," Energy Economics, Elsevier, vol. 60(C), pages 325-332.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olusola Joshua Olujobi & Elizabeta Smaranda Olarinde & Tunde Ebenezer Yebisi & Uchechukwu Emena Okorie, 2022. "COVID-19 Pandemic: The Impacts of Crude Oil Price Shock on Nigeria’s Economy, Legal and Policy Options," Sustainability, MDPI, vol. 14(18), pages 1-20, September.
    2. Ganepola, Chanaka N. & Shubita, Moade & Lee, Lillian, 2023. "The electric shock: Causes and consequences of electricity prices in the United Kingdom," Energy Economics, Elsevier, vol. 126(C).
    3. Zhaoyong Sun & Xinyu Cai & Wei-Chiao Huang, 2022. "The Impact of Oil Price Fluctuations on Consumption, Output, and Investment in China’s Industrial Sectors," Energies, MDPI, vol. 15(9), pages 1-19, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Yudong & Liu, Li & Diao, Xundi & Wu, Chongfeng, 2015. "Forecasting the real prices of crude oil under economic and statistical constraints," Energy Economics, Elsevier, vol. 51(C), pages 599-608.
    2. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    3. Tiwari, Aviral Kumar & Cunado, Juncal & Hatemi-J, Abdulnasser & Gupta, Rangan, 2019. "Oil price-inflation pass-through in the United States over 1871 to 2018: A wavelet coherency analysis," Structural Change and Economic Dynamics, Elsevier, vol. 50(C), pages 51-55.
    4. Hillard G. Huntington, 2017. "The Historical Roots of U.S. Energy Price Shocks," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    5. Huntington, Hillard, 2016. "The Historical “Roots” of U.S. Energy Price Shocks: Supplemental Results," MPRA Paper 74701, University Library of Munich, Germany.
    6. Jaime Casassus & Freddy Higuera, 2011. "Stock Return Predictability and Oil Prices," Documentos de Trabajo 406, Instituto de Economia. Pontificia Universidad Católica de Chile..
    7. Broadstock, David C. & Filis, George, 2014. "Oil price shocks and stock market returns: New evidence from the United States and China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 417-433.
    8. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    9. Jihoon Lee & Hong Chong Cho, 2021. "Impact of Structural Oil Price Shock Factors on the Gasoline Market and Macroeconomy in South Korea," Sustainability, MDPI, vol. 13(4), pages 1-23, February.
    10. Martin Enilov & Giorgio Fazio & Atanu Ghoshray, 2023. "Global connectivity between commodity prices and national stock markets: A time‐varying MIDAS analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2607-2619, July.
    11. Atems, Bebonchu & Kapper, Devin & Lam, Eddery, 2015. "Do exchange rates respond asymmetrically to shocks in the crude oil market?," Energy Economics, Elsevier, vol. 49(C), pages 227-238.
    12. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    13. Angelidis, Timotheos & Degiannakis, Stavros & Filis, George, 2015. "US stock market regimes and oil price shocks," Global Finance Journal, Elsevier, vol. 28(C), pages 132-146.
    14. M-Ali Sotoudeh & Andrew C. Worthington, 2016. "A comparative analysis of monetary responses to global oil price changes: net oil producing vs. net oil consuming countries," International Economics and Economic Policy, Springer, vol. 13(4), pages 623-640, October.
    15. Elsayed, Ahmed H. & Hammoudeh, Shawkat & Sousa, Ricardo M., 2021. "Inflation synchronization among the G7and China: The important role of oil inflation," Energy Economics, Elsevier, vol. 100(C).
    16. Pan, Zhiyuan & Wang, Yudong & Liu, Li, 2016. "The relationships between petroleum and stock returns: An asymmetric dynamic equi-correlation approach," Energy Economics, Elsevier, vol. 56(C), pages 453-463.
    17. Rajesh H. Acharya & Anver C. Sadath, 2018. "Revisiting the relationship between oil price and macro economy: Evidence from India," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2018(1), pages 173-190.
    18. Kostas Mavromaras & M-Ali Sotoudeh & Andrew C. Worthington, 2017. "Responses of Economic Activity to Global Oil Market Shocks: A Comparative Analysis of Major Net Oil-Producing and -Consuming Countries," The Economic Record, The Economic Society of Australia, vol. 93, pages 70-85, June.
    19. Ronald A. Ratti & M. Zahid Hasan, 2013. "Oil Price Shocks and Volatility in Australian Stock Returns," The Economic Record, The Economic Society of Australia, vol. 89, pages 67-83, June.
    20. Cakan, Esin & Demiralay, Sercan & Ulusoy, Veysel, 2021. "Oil Prices and Firm Returns in an Emerging Market," American Business Review, Pompea College of Business, University of New Haven, vol. 24(1), pages 166-187, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:13:y:2020:i:10:p:2603-:d:360883. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.