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Jamie Emerson
''Oil Prices and Economic Activity: A Brief Update''
( 2010, Vol. 30 No.2 )
Using recent data, this paper investigates whether changes in oil prices have the expected effects on the US economy. Cointegration analysis and vector error correction models are employed in order to evaluate the impact of changing oil prices on US output and inflation. Further, impulse response analysis is performed to assess how shocks to oil prices affect the aggregate price level and aggregate economic activity. Our findings indicate, as expected, that regardless of the sample period considered, an oil price shock leads to higher inflation and lower industrial production in the US economy.
Keywords: Cointegration, Vector Error Correction, Impulse Response, Oil Price Shocks
JEL: Q4 - Energy: General
Manuscript Received : Feb 24 2010 Manuscript Accepted : May 18 2010

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