the role of the trade channel in the propagation of oil supply shocks abstract this paper analyzes when and why idiosyncratic oil supply shocks produce large macroeconomic effects in an analytically tractable two country general equilibrium model we focus on a demand driven mechanism the trade channel which transmits oil shocks across economies through changes in the non oil goods terms of trade when the trade channel is operative we have three main consequences on the transmission of oil shocks first the macroeconomic impact of oil shocks may be large and asymmetric across countries second the magnitude of the effects is nonlinear in the size of the oil shock third terms of trade movements never ensure international risk sharing after an idiosyncratic oil supply shock

international oil shocks and household consumption in china abstract we investigate the impacts that oil price shocks have on residential consumption in china while it is well understood that oil prices affect consumption in a multitude of ways the timing and directness of these effects on specific consumption categories is not clear we demonstrate that the most immediate and direct effect passes through transportation consumption as might be expected but we also show that significant effects pass through consumption in other sectors including food and clothes medical expenditure and other general living expenditure with less immediacy given the results particularly observed asymmetries with respect to rises and falls in international oil prices we discuss some implications for future adjustments to domestic price policies in particular the case for removal of domestic price regulation

monetary policy matters abstract this paper addresses hoover and perez s comments on our 1989 paper we first show that the estimated impact of monetary policy shifts remains large and ranges from marginally to strongly significant when oil shocks are controlled for we then extend our previous work by expanding the sample period and identifying an additional policy shift in december 1988 with this extension the estimated effects of monetary policy shifts are large and highly significant for all reasonable specifications of oil shocks we also demonstrate that hoover and perez s other objections have little bearing on our conclusions

economic activity and recession probabilities information content and predictive power of the term spread in italy the aim of the present article is to examine the information content of the italian term spread as for real economic growth rates and recession probabilities and to test its predictive power in forecasting regime probabilities to this end the relationship between the term spread and economic growth rates is modelled as a nonlinear one and specifically the logistic smooth transition model is used while a probit model is implemented to forecast recession probabilities specific to this article is the use of the oecd business cycle chronology which was never used before to this end for the italian case overall evidence supports the informative content of the spread in italy over the whole period 1984 2005 although results are more satisfactory as from 1992 in particular recession forecasts are generally better than those obtained with other chronologies previously adopted for the italian case isae and ecri

macroeconomic impacts of oil price shocks in asian economies abstract this paper analyzes the macroeconomic impact of structural oil shocks in four of the top oil consuming asian economies using a var model we identify three different structural oil shocks via sign restrictions an oil supply shock an oil demand shock driven by global economic activity and an oil specific demand shock the main results suggest that economic activity and prices respond very differently to oil price shocks depending on their types in particular an oil supply shock has a limited impact while a demand shock driven by global economic activity has a significant positive effect in all four asian countries examined our finding also includes that policy tools such as interest rates and exchange rates help mitigating the effects of supply shocks in japan and korea however they can be more actively used in response to demands shocks

post hoc ergo propter once more an evaluation of does monetary policy matter in the spirit of james tobin christina and david romer s paper does monetary policy matter advocates the so called narrative approach to causal inference we demonstrate that this method will not sustain causal inference first it is impossible to distinguish monetary shocks from oil shocks as causes of recessions second a world in which the fed only announces intentions to act cannot be distinguished from one in which it in fact acts third the techniques of dynamic simulation used in the romers study are inappropriate and quantitatively misleading and finally their approach provides no basis for establishing causal asymmetry

oil price shocks and the macroeconomy this paper examines the impact of oil price shocks and attempts to explain why the rise in oil prices up to 2008 had little impact on the world economy it makes three main arguments first that oil prices have never been as important as is popularly thought second that the most important route through which oil prices affect output is monetary policy when oil prices pass through to core inflation monetary authorities raise interest rates slowing growth based on the second argument the third argument is that high oil prices have not reduced growth in recent years because they no longer pass through to core inflation so the monetary tightening previously seen in response to high oil prices is absent it also argues that oil prices had little impact on the global recession of 20089

stochastic comparisons in production yield management manufacturing firms routinely commit resources to increase yield rates through product and process improvement initiatives champions of such yield improvement projects may assume that stochastically larger yield rates are beneficial in this note we show that this need not hold even when the contingent production lot sizes are chosen optimally we employ stochastic comparison techniques to show that a yield rate that is smaller in the convex order ensures higher expected profit and we provide a distribution free bound on the size of increase in expected profit we also identify properties of yield rate distributions that do make stochastically larger yield rates beneficial

relative energy price and investment by european firms abstract a dynamic model of investment is estimated with data on non financial firms in 15 european countries across 25 industries over 1991 2006 a rise in real energy price reduces the degree of persistence in the investment adjustment cost function panel results suggest that in manufacturing a 1 rise in real energy price reduces investment by a country s firms by 1 9 relative to that by firms in other countries with a smaller effect for non manufacturing firms the negative effect of a higher relative price of energy on firm level investment is significantly less marked the larger the firm results imply that stabilizing the relative price of energy would steady firm investment with greater gains in stability at smaller and medium sized firms results are robust to consideration of country business cycle effect and firm leverage estimation of investment is based on the euler equation approach with over 21 000 observations individual country regressions imply that a rise in the relative price of energy price has a statistically significant negative effect on firm level investment in 14 out of 15 countries to avoid dynamic panel bias estimation is by generalized method of moments with instrumental variables

why do energy prices matter the role of interindustry linkages in u s manufacturing there is considerable empirical evidence that energy prices had a large effect on the u s economy between world war ii and the 1980s this paper argues that linkages between manufacturing industries amplify the effect of an energy price shock and help explain the large effect in particular energy intensive industries are important input suppliers to other industries when the price of energy increases energy intensive industries contract raising materials prices for other industries because of the reduction in materials supply the downstream industries also contract which i refer to as the supply effect using data from the census of manufactures i find that the supply effect accounted for about one half of the sensitivity of value added to the price of energy i use plant level census data to show that the supply effect caused similar changes in value added per plant as in value added per industry a price increase caused a small although statistically significant decrease in entry and had no effect on exit finally the supply effect reduced plant level labor demand jel e32 q43

variance properties of solow s productivity residual and their cyclical implications abstract for the united states economy 1960 1989 the correlation between the growth rates of the solow residual and the real price of energy government spending is 0 55 0 09 this study develops a model to see if it quantitatively captures the endogenous transmission mechanism underlying the observed solow residual correlations it does the transmission mechanism depends on endogenous capital utilization incorporating shocks to true technology energy prices and government spending the model economy accounts for 76 or 89 percent of u s output volatility and is generally consistent with features of u s business cycles

the role of energy in real business cycle models abstract this paper modifies hansen s 1985 analysis of a real business cycle mode with indivisible labor by explicitly including energy as a productive input and modelling the relative price of energy as an exogenous random process one goal is to determine the extent to which the introduction of energy price shocks reduces the reliance of the real business cycle model on unobserved technology shocks the other goal following christiano and eichenbaum 1991 is to compare the correlation between real wages and hours predicted by the energy inclusive model to that predicted by hansen s model

on the dynamic effects of oil price shocks a study using industry level data abstract this paper analyzes the effects of oil price shocks on demand and supply in various industries the impulse responses of identified var models indicate that for industries that have a large cost share of oil such as petroleum refinery and industrial chemicals oil price shocks mainly reduce supply in contrast for many other industries with the automobile industry being a particularly important example oil price shocks mainly reduce demand the paper suggests that oil price shocks influence economic activities beyond that explained by direct input cost effects possibly by delaying purchasing decisions of durable goods

time varying effect of oil market shocks on the stock market abstract a mixture innovation time varying parameter var model is used to examine the impact of structural oil price shocks on u s stock market return time variation is evident in both the coefficients and the variance covariance matrix the standard deviations of the demand side structural shocks reached forty year peaks during the global financial crisis and have remained high since in the real stock return equation the coefficient of global real economic activity has declined since the late 1990s and that of oil market specific demand oil shock has been lower since the early 1990s than before the structural oil shocks account for 25 7 of the long run variation in real stock returns overall with substantial change in levels and sources of contribution over time the contribution of shocks to global real economic activity to real stock return variation rose sharply to 22 in 2009 and remains 17 over 2009 2012 the contribution of oil market specific demand price shocks rose unevenly from 5 in the mid 1970s to about 15 in 2007 with a subsequent decline the contribution of oil supply shocks has trended downward from 17 to 5 over 1973 2012

models of energy use putty putty versus putty clay energy use is inelastic in time series data but elastic in international cross section data two models of energy use reproduce these elasticities a putty putty model with adjustment costs developed by pindyck and rotemberg 1983 and a putty clay model in the pindyck rotemberg model capital and energy are highly complementary in both the short run and the long run in the putty clay model capital and energy are complementary in the short run but substitutable in the long run we highlight the differences in the cross section implications of the models by considering the effect of an energy tax on output in both models in the putty putty model an energy tax that doubles the price of energy leads to a fall in output in the long run of 33 in contrast the same tax in the putty clay model leads to a fall in output of only 5 3

oil and the macroeconomy since world war ii all but one of the u s recessions since world war ii have been preceded typically with a lag of around three fourths of a year by a dramatic increase in the price of crude petroleum this does not mean that oil shocks caused these recessions evidence is presented however that even over the period 1948 72 this correlation is statistically significant and nonspurious supporting the proposition that oil shocks were a contributing factor in at least some of the u s recessions prior to 1972 by extension energy price increases may account for much of post opec macroeconomic performance

imperfect competition and the effects of energy price increases on economic activity the authors show that modifying the standard neoclassical growth model by assuming that competition is imperfect makes it easier to explain the size of the declines in output and real wages that follow increases in the price of oil plausibly parameterized models of this type are able to mimic the response of output and real wages in the united states the responses are particularly consistent with a model of implicit collusion where markups depend positively on the ratio of the expected present value of future profits to the current level of output copyright 1996 by ohio state university press

the effects of oil price shocks on u s stock order flow imbalances and stock returns this paper investigates for the first time the effects of oil demand shocks and oil supply shocks on stock order flow imbalances leading to changes in stock returns through the estimation of a structural var model positive oil demand shocks are able to explain almost 36 of the observed variation in the daily average stock order flow imbalances measured by the buy sell trades ratio which consequently lead to a negative rather than positive stock returns reaction in contrast oil supply shocks exhibit a negative and marginally significant effect on stock order flow imbalances our aggregate analysis suggests that positive shocks on stock order flow imbalances are negatively related to stock returns these effects are stronger for oil related sectors when compared with the rest of the equities sectors

oil price shocks and the dispersion hypothesis recent research by david lilien shows that a significant fraction of aggregate unemployment can be explained by the dispersion of employment growth across industries this paper presents two new results in this area first it is shown that a significant fraction of the variation in lilien s dispersion index is due to the differential impact of oil shocks across industries second and more important it is shown that once the dispersion in employment growth due to oil shocks is accounted for the residual dispersion has no explanatory power for unemployment

oil price fluctuations and u s dollar exchange rates adding oil prices to the monetary model of exchange rates we find that oil prices significantly explain movements in the value of the u s dollar usd against major currencies from the 1970s to 2008 our long run and forecasting results are remarkably consistent with an oil exchange rate relationship increases in real oil prices lead to a significant depreciation of the usd against net oil exporter currencies such as canada mexico and russia on the other hand the currencies of oil importers such as japan depreciate relative to the usd when the real oil price goes up

this is what happened to the oil price macroeconomy relationship reply abstract james hamilton argues that oil price changes are still important for the macroeconomy and that using a filter which screens out drops and measures increases relative to a reference level wellrepresents the effects of price changes when they are choppy while this measure outperforms the oil price transformations considered in my paper much of its predictive power is coming from the pre 1986 and pre 1973 part of the sample with less than 10 years of choppy data finding the best oil price transformation will likely require analysis with cross sectional components ruling out effects from oil price decreases is also probably counterproductive to uncovering structure

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

the effects of oil price shocks on job reallocation we investigate the effect of oil price innovations on u s manufacturing job flows using a simultaneous equation model that nests symmetric and asymmetric responses we find no evidence of asymmetry in the response of job flows to positive and negative oil price innovations we then inquire whether firms when facing positive shocks shed jobs faster than they create jobs we show that positive innovations lead to a decline in net employment and an increase in job reallocation possibly due to search and matching issues yet the latter effect becomes statistically insignificant when we control for data mining we demonstrate that the cumulative one year effect of oil price shocks on job creation and destruction was smaller during the great moderation but it was larger for gross job reallocation these variations were caused by a change in the transmission channel and not by smaller oil price shocks

a neoclassical model of unemployment and the business cycle this paper investigates a general equilibrium model of unemployment and the business cycle in which specialization of labor plays a key role a rational expectations equilibrium with fully flexible wages and prices can exhibit unemployment in which the marginal product of employed workers exceeds the reservation wage of those who are without jobs workers are unemployed either because they are in the process of relocating for a better job or because they are waiting for conditions in the depressed sector to improve moreover seemingly small disruptions in the supplies of primary commodities such as energy could be the source of fluctuations in aggregate employment and can exert surprisingly large effects on real output

a wavelet analysis of mean and volatility spillovers between oil and brics stock markets this paper investigates the spillover effects of volatility and shocks between oil prices and the brics stock markets using multivariate approach and wavelet analysis at different time horizons hence we combine a multivariate arma garch model and wavelet multiresolution analysis to study this phenomenon a bivariate arma 1 1 garch 1 1 cdcc student t model was joined with modwt filter to capture a broad range of possible spillover effects in mean and variances of level prices at various time horizons generally empirical results provide strong evidence of time varying volatility in all markets under study however our proposed approach shows that oil price and stock market prices are directly affected by their own news and volatilities and indirectly affected by the volatilities of other prices and wavelet scale the results show also that mean and volatility spillover effects was decomposed into many sub spillovers on different time scales according to heterogeneous investors and market participants the practical implications of this study are critical innovative and useful for the local and international investors and also for the portfolio managers they can utilize this study to formulate the optimal oil bricks stock portfolios as well as lead to more accurate predictions of volatility spillovers patterns also in developing their hedging strategies

not all sectors are alike differential impacts of shocks in oil prices on the sectors of the colombian economy abstract in this paper an estimation of differential impacts of shocks in oil prices on the economic sectors in the oil exporting colombia is made using data from the world economy and adopting the model of structural autoregressive vectors var employed by kilian et al 2009 oil prices shocks are estimated according to three types of origin oil supply oil demand and aggregate demand subsequently using data from the colombian economy the effects that these shocks have on sectoral production in colombia are estimated through the use of var models which allow direct impacts to be separated from those that are transmitted through the interrelations between sectors the results obtained show that only the specific demand for oil and aggregate demand shocks affect significantly the total production in colombia although not in all sectors only manufacturing industry and electricity gas and water sectors are directly and significantly affected by both types of demand shocks however when considering the indirect effects transmitted through the interrelations between sectors it was found that the total impacts of these two types of shocks affect the construction transport and trade restaurants and hotels sectors as the effect is positive the colombian economy benefits from increases in oil prices due to demand factors but responds negatively when the opposite situation occurs

what happened to the oil price macroeconomy relationship abstract strong evidence is found that oil prices no longer granger cause many u s macroeconomic indicator variables in data after 1973 a number of potential explanations are explored that sample stability issues are responsible that oil prices are now endogenous and that linear and symmetric specifications misrepresent the form of the oil price interaction none of these hypotheses are supported by the data the opec price increases do appear to have had significant impacts while the effects of the price declines of the 1980s are smaller and harder to characterize these results have potentially important implications for the large body of research which utilizes oil prices as an instrumental or explanatory variable

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

how is volatility in commodity markets linked to oil price shocks abstract this study investigates the effects of oil price shocks on volatility of agricultural and metal commodities we decompose an oil price shock to its underlying components including macroeconomics and oil specific shocks the applied method is the structural vector autoregressive svar model and the time span is from april 1983 to may 2014 the investigation is divided into two subsamples before and after may 2006 for agriculture taking into account the 2006 2008 food crisis and change in u s ethanol production policy and before and after january 2008 for metals considering the recent global financial crisis we find that based on impulse response functions the response of volatility of each commodity to an oil price shock differs significantly depending on the underlying cause of the shock for the both periods moreover according to variance decomposition the explanatory power of oil shocks becomes stronger after the crisis the different responses of commodities are described in detail by investigating market characteristics in each period

this is what happened to the oil price macroeconomy relationship abstract many of the quarterly oil price increases observed since 1985 are corrections to even bigger oil price decreases the previous quarter when one looks at the net increase in oil prices over the year recent data are consistent with the historical correlation between oil shocks and recessions

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

dynamic factor demands and the effects of energy price shocks a dynamic model is used to understand how sharp changes in energy prices affect investment behavior employment and energy use the authors discuss the theory behind their model selection model specifications estimation methods and data list parameter estimates and elasticities for the selected model and describe the simulations they conclude that 1 the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production 2 the data indicate adjustment costs on labor are small and 3 their results help reconcile some of the conflicting estimates of energy demand elasticities appearing in recent literature 23 references 3 figures 3 tables

the impact of oil price shocks on u s bond market returns abstract this paper examines the effect of the demand and supply shocks driving the global crude oil market on aggregate u s bond index real returns a positive oil market specific demand shock is associated with significant decreases in aggregate bond index real returns for 8 months following the shock a positive innovation in aggregate demand has a negative effect on real bond return that is statistically significant and becomes more adverse over 24 months structural shocks driving the global oil market jointly account for 27 1 of the variation in real bond returns at 24 month horizon a spillover index from rolling svar models is used to identify the interdependence between the oil market and bond returns the mean for this spillover index is 0 381 over 2001 01 2011 12 and 0 476 over september through december 2008 during the height of the global financial crisis

oil prices and economic downturns the case of spain abstractwe address the macroeconomic effects of an oil price shock in spain we apply a vector autoregression model var analysis to quarterly data for the spanish economy since 1986 to elucidate the effects of variations in the oil price on the economy considering the three main causes of disruptions in the oil markets oil supply shocks oil demand shocks and oil specific precautionary demand shocks we conclude that the effects in spain strongly depend on the type of shock the consumer price index cpi has mainly been influenced by oil demand shocks output has only reacted to oil supply shocks and monetary policy has mainly reacted after precautionary shocks second round effects caused by the behaviour of nominal wages have not been found additionally we discuss two facts the ability of firms to increase markups in a context of rising demand and the procyclical role of monetary policy when faced with oil demand shocks

the impact of oil price shocks on the u s stock market a note on the roles of u s and non u s oil production abstract kilian and park 2009 find shocks to oil supply are relatively unimportant to understanding changes in u s stock returns we examine the impact of both u s and non u s oil supply shocks on u s stock returns in light of the unprecedented expansion in u s oil production since 2009 our results underscore the importance of the disaggregation of world oil supply and of the recent extraordinary surge in the u s oil production for analysing impact on u s stock prices a positive u s oil supply shock has a positive impact on u s real stock returns oil demand and supply shocks are of comparable importance in explaining u s real stock returns when supply shocks from u s and non u s oil production are identified

energy price shocks and the macroeconomy the role of consumer durables so far the literature on dynamic stochastic general equilibrium models with energy price shocks uses energy on the production side only in these models energy shocks are responsible for only a negligible share of output fluctuations we study the robustness of this finding by explicitly modeling private consumption of energy at the household level in addition to energy use at the firm level to account for total energy use in the economy additionally we distinguish between investment in consumer durables and investment in capital goods the model economy is calibrated to match total energy use and durable goods consumption as observed in the u s data simulation results indicate that despite higher total energy use this economy has an even smaller proportion of output fluctuations attributable to energy price shocks productivity shocks continue to be the primary force behind business cycle fluctuations the driving force behind our results is that the household now has the flexibility to rebalance its investment portfolio specifically the energy price hike is absorbed by reducing durable goods investment more than investment in capital goods thereby cushioning the hit to future production at the expense of current consumption hence our model better matches the consumption volatility observed in the data jel classification e32 q43

cyclical fluctuations and sectoral reallocation evidence from the psid abstract this paper documents the correlation between permanent sectoral reallocation and the business cycle using data from the michigan panel study of income dynamics we find that the outflow of workers from goods to services accelerates during recessions the flow from services to stable employment in surables accelerates during booms we also document the contribution of sectoral reallocation to total unemployment permanent switchers account for about a quarter of the total weeks of unemployment during booms this proportion rises to nearly 40 duing recessions

oil and the macroeconomy when prices go up and down an extension of hamilton s results in an important paper hamilton 1983 demonstrated a strong correlation between oil price changes and gross national product growth in u s data however his study pertained to a period in which all the large oil price movements were upward and thus it left unanswered the question whether the correlation persists in periods of price decline moreover the price variable he used was somewhat distorted by price controls in the 1970s this note investigates whether hamilton s results continue to hold when the sample is extended to include the recent oil market collapse and the oil price variable is corrected for the effects of price controls particular attention is given to the possibility of asymmetric responses to oil price increases and decreases as suggested in the structural employment literature loungani 1986 davis 1987 hamilton 1988 like hamilton i based my investigation on the gnp equation in sims s 1 980b six variable quarterly vector autoregressive model

oil and the economy a systematic review of the literature for ecological economists abstract this article offers a systematic review of the mainstream literature in oil economics macroeconomics international and financial economics and political economy complementing and complicating the way ecological economics understands the links between oil and the economy we look at the supply and demand factors that affect oil prices the ways oil prices affect the economy the effect of interest rates capital flows and exchange rates on oil prices and extraction and the role of geo politics in governing oil and money flows we develop an illustrative system model of the causal pathways that link oil and the economy and compare alternative explanations of the oil price shocks of the 1970s and 2000s the emphasis of ecological economics on peak oil and resource limits to growth may be relevant over the long run but is less capable of explaining precisely how oil contributes to concrete economic short run crises now

china s soaring vehicle population even greater than forecasted abstract china s vehicle population is widely forecasted to grow 6 11 per year into the foreseeable future barring aggressive policy intervention or a collapse of the chinese economy we suggest that those forecasts are conservative we analyze the historical vehicle growth patterns of seven of the largest vehicle producing countries at comparable times in their motorization history we estimate vehicle growth rates for this analogous group of countries to have 13 17 per year roughly twice the rate forecasted for china by others applying these higher growth rates to china results in the total vehicle fleet reaching considerably higher volumes than forecasted by others implying far higher global oil use and carbon emissions than projected by the international energy agency and others

beyond demand and supply curves in macroeconomics this paper surveys recent issues in macroeconomics from the viewpoint of dynamic economic theory the need to look beyond demand and supply curves and the insights that come from doing so are emphasized examples of issues in debt management and fiscal policy are analyzed

the employment and wage effects of oil price changes a sectoral analysis in this paper we use micro panel data to examine the effects of oil price changes on employment and real wages at the aggregate and industry levels we also measure differences in the employment and wage responses for workers differentiated on the basis of skill level we find that oil price increases result in a substantial decline in real wages for all workers but raise the relative wage of skilled workers the use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover this result which is completely hidden in ols estimates while the short run effect of an oil price increase on aggregate employment is negative the long run effect is in fact positive we find that changes in oil prices induce changes in employment shares and relative wages across industries however we find little evidence that oil price changes cause labor to consistently flow into those sectors with relative wage increases copyright 1996 by mit press

oil price shocks and transportation firm asset prices abstract the transportation sector is a major user of oil based energy even as oil prices continue to fluctuate greatly the impact of oil price changes on transportation firms has heretofore not been adequately examined this paper fills this gap documenting important new findings based on analysis of over two decades of daily data on large changes in oil prices oil price shocks first while transportation firm returns are influenced negatively by oil price increases risks are increased more by oil price declines second firm characteristics are important with the market to book ratio being the most important firm characteristic and roa firm size and the prior run up in prices are also important in influencing oil price related returns betas variances and trading volumes third in the s p transportation sub sector industry concentration is negatively related to returns oil price risk and trading volume and asymmetrically related to returns and market betas these new findings enhance our understanding of the asset price impact of oil price shocks and should be of much interest to scholars corporate executives money managers regulators and policy makers

oil shocks and aggregate macroeconomic behavior the role of monetary policy a recent paper by bernanke gertler and watson 1997 suggests that monetary policy could be used to eliminate any recessionary consequences of an oil price shock this paper challenges this conclusion on two grounds first we question whether the federal reserve actually has the power to implement such a policy for example we consider it unlikely that additional money creation would have succeeded in reducing the fed funds rate by 900 basis points relative to the values seen in 1974 second we point out that the size of the effect that bernanke gertler and watson attribute to oil shocks is substantially smaller than that reported by other researchers primarily due to their choice of a shorter lag length than that used by other researchers we offer evidence in favor of the longer lag length employed by previous research and show that under this specification even the aggressive federal reserve policies proposed would not have succeeded in averting a downturn