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How Strongly Did the 2007/08 Oil Price Hike Contribute to the Subsequent Recession?

Author

Listed:
  • Kai Carstensen
  • Steffen Elstner
  • Georg Paula

Abstract

What were the economic consequences of the 2007/08 oil price hike for Germany? In this paper we use a structural vector autoregressive model to study the effects of oil price changes driven by different supply and demand shocks on the German economy. We find that a higher oil bill always stifles private consumption expenditures but the response of GDP crucially depends on the underlying shock. On the one hand, an oil supply disruption clearly provokes a recession. On the other hand, positive demand shocks prompt a temporary increase in exports and investment that initially outweigh the cutback on consumption induced by soaring oil prices and thus boost GDP for a while. A disaggregate analysis of the manufacturing sector suggests that a demand-driven oil price rise leads to a shift in world demand towards German export goods. In a counterfactual analysis we show that the world demand shocks that led to the 2007/08 oil price hike triggered a delayed 0.8 percent reduction of German GDP in 2009 and, therefore, notably contributed to the recession of that year.

Suggested Citation

  • Kai Carstensen & Steffen Elstner & Georg Paula, 2011. "How Strongly Did the 2007/08 Oil Price Hike Contribute to the Subsequent Recession?," CESifo Working Paper Series 3357, CESifo.
    • Handle: RePEc:ces:ceswps:_3357
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    References listed on IDEAS

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    Cited by:

    1. Christian Seiler, 2012. "The Data Sets of the LMU-ifo Economics & Business Data Center – A Guide for Researchers," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 132(4), pages 609-618.
    2. Maisonnave, Hélène & Pycroft, Jonathan & Saveyn, Bert & Ciscar, Juan-Carlos, 2012. "Does climate policy make the EU economy more resilient to oil price rises? A CGE analysis," Energy Policy, Elsevier, vol. 47(C), pages 172-179.

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    More about this item

    Keywords

    German production; oil market; demand shocks; supply shocks; vector autoregressions;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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