Oil Price Shocks and Macroeconomic Performance in OECD Countries

Abstract

We identify oil price shocks arising from changes in country-specific inflation and output conditions together with the fundamentals and investigate their consequent macroeconomic impacts. Using quarterly data from 1973 to 2016, we find that the impacts of the idiosyncratic inflation and output shocks on the macroeconomy are as crucial as the impact of the fundamentals. We also evaluate whether structural differences matter for the effects of oil shocks across countries and find that the role of oil intensity is inconsequential for explaining cross-country differences in the effects of the traditional oil shocks. This role, however, is essential for determining the macroeconomic effects of the country-specific oil shocks across oil-importing OECD countries. The findings show the importance of research aimed at identifying country-specific oil shocks and affirm the need to explicitly consider changes in domestic inflation and output conditions when analyzing the impacts of oil price shocks. (C33, E31, E32, Q41, Q43)