Oil Prices and Recessions

If I believed forecasting wasn't largely fruitless, the predictions by James D. Hamilton would make me nervous.

LOUNGANI: How has your thesis held up over the past 20 years?
HAMILTON: Quite well.My evidence showed that six of the seven U.S. recessions since 1947 were preceded by a sharp increase in the price of petroleum; the only one that wasn’t was the 1960 recession.While I was working on the thesis, U.S. oil prices shot up because of the Iran-Iraq war in the early 1980s and the U.S. deregulation of the oil industry. This was followed by a recession. A decade later, the spike in oil prices triggered by Iraq’s invasion of Kuwait was followed by the recession of 1990–91. A decade after that, oil prices played a role in the recession of 2001. So the score is now up to 9 out of 10.

Further reading: James D. Hamilton, 2003, “What Is an Oil Shock?” Journal of Econometrics,Vol. 113
(April), pp. 363–98.

I wonder how many oil price shocks have not been followed by a recession? I guess I should get his latest article.

Thanks to Newmark via Mahalanobis for the link.

Keywords: ECO120, ECO305, ECO307, ECO712

Posting to Resume..

As soon as I'm finished with grades, I should be able to post more regularly. Oh the beauties of academia. Some of my posts will find their way to Truck and Barter. I recently introduced myself over there.

A Random Walk

Michael Stantsy at Mahalanobis has an excellent post on the statistical process from which this blog draws its name.

By far, the most interesting stochastic process used in financial economics is Brownian motion. The role of Brownian motion in stochastic processes is similar to that of Normal random variables in elementary statistics. The concept of a random walk, the discrete counterpart of the (continuous time) Brownian motion, is well known among students of economics, since most macroeconomic time series behave in a similar fashion (A random walk is a special case of what is known as unit root process or I(1) process). The plot given below shows trajectories (realizations) of a random walk process.

I agree, it is a statistical process that continues to interest me. My question is when trying to distinguish between a stationary and a non-stationary process: what is the difference between a permanent innovation and a structural break? And how can we distinguish between the two?

Commencement: A Beginning or an End to Labor?

As we approach commencement ceremonies here, and my office is increasingly flooded with anxious seniors wondering "what next?" I offer the following working paper by Jay Stewart of the Bureau of Labor Statistics "What Do Male Nonworkers Do?"

According to Alan Krueger in his review of the paper, more men in their prime working years are pursuing a Kramerian lifestyle (after Seinfeld's Kramer who appeared to never really work, yet never wanted for anything). "In 1967, 2.2 percent of noninstitutionalized men age 25 to 54 spent the entire year without working for pay or attending school. That figure climbed to 8 percent in 2002, the latest year available from the Bureau of Labor Statistics."

This is partially due to a rise in the number of people on disability and disproportionately affects men with less than a high school degree. Furthermore, "joblessness is persistent over time, so it ends up being highly concentrated among a small cadre of men who frequently spend long stretches without work." As a result, long-term joblessness among men has become a more important problem than unemployment. These men aren't actively looking for work, so they aren't counted in the unemployment figures, but they, nonetheless, represent an inefficiency in the economy: unproductive resources.

Why aren't they working? "The conventional wisdom is that joblessness has grown since the early 1980s because the demand for less-skilled workers has dropped, causing their pay to fall. The decline in unions and erosion of the real value of the minimum wage have also caused their pay to fall. Rather than toil at low pay, more and more men have withdrawn from the market."

It would be one thing if they were all becoming Mr. Mom's; performing child care, or engaging in household work. In other words, performing some productive activity that contributes to the economy albeit not formally--the sort of work for which women have historically been responsible. What Stewart finds in his study of time-use surveys, however, is that "many manage to live as if every day were Sunday" (Krueger). Nonworkers spent 8.4 hours per day on leisure and recreation, and 3.3 hours to housework. This compares to how a male worker spends his day off.

For those of you graduating soon, don't get your hopes up; financing the Kramerian lifestyle is a full-time job. Most nonworking men were funded by Social Security and disability payments. Others were financed by their wives' income or continued living with their parents. As with everything else, life's choices contain tradeoffs: You can spend your post-graduate days shooting 18 holes, just be sure you're home for dinner and walk the dog before bed.

Keywords: ECO330, ECO336