Friday, May 21, 2004

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

No comments: