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How Does the Oil Price Shock Affect Consumers?

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  • Liping Gao
  • Hyeongwoo Kim
  • Richard Saba

Abstract

Edelstein and Kilian (2009) point out that the oil price shock involves a reduction in consumer spending, which results in a decrease in the demand for goods and services. This paper empirically evaluates this argument by empirically investigating effects of the oil price shock on six CPI sub-indices in the US. We find substantial decreases in the relative price in less energy-intensive sectors, but not in energy-intensive sectors. Our findings are consistent with those of Edelstein and Kilian (2009) in the sense that spending adjustments play an important role in price dynamics.

Suggested Citation

  • Liping Gao & Hyeongwoo Kim & Richard Saba, 2013. "How Does the Oil Price Shock Affect Consumers?," Auburn Economics Working Paper Series auwp2013-04, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2013-04
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    References listed on IDEAS

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    1. Zhang, Dayong, 2008. "Oil shock and economic growth in Japan: A nonlinear approach," Energy Economics, Elsevier, vol. 30(5), pages 2374-2390, September.
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    More about this item

    Keywords

    Oil Price Shocks; Pass-Through Effect; Consumer Price Sub-Index; Consumption Expenditures; Income Effect;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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