Basic Studies Establishing The Oil Price Economic Growth Relationship

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Basic studies establishing the oil price economic growth relationship Hamilton (1983) stated that the correlation between oil price evolution and economic output was not of a historical coincidence for the 1948-72 period. An increasing oil price was followed 3-4 quarters later by slower output growth with a recovery beginning after 6-7 quarters. These results also apply to the period 1973-1980. The negative effect is more distinct in inflationary times. It wouldn’t have been possible to anticipate these reductions in real GNP growth on the basis of the previous situation of output, prices, or money supply. In general, Hamilton’s results have been confirmed by several subsequent studies. In 1986, Gisser and Goodwin indicated for the analyzed period from 1961 to 1982 that the oil price hadn’t lost its potential to predict GNP growth. Moreover, they presented two interesting results concerning the relationship between oil price changes and macroeconomic variables. First, they showed that monetary and fiscal policy measures alone cannot explain the effects of oil price shocks on macro economy after oil market disruptions. Thus, oil shocks also have an impact on economic output by other means than inflationary cost-push effects. Second, oil price effects on the U.S. economy did not change after 1973 when the OPEC period began. Hooker (1996) confirmed Hamilton’s results and demonstrated for the period 1948-72 that the oil price level and its changes do exert influence on GDP
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