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EMF OP 54: Shares, Gaps, and Economy's Response to Oil Disruption

Most previous studies have focusedon whether oil price shocks cause economic recessions but fewer studieshave investigated whether the impact of an oil price shock can bedifferent under alternative economic conditions. Using an internationaldata set of industrialized economies, this paper explores whether aneconomy relying more on oil or operating closer to full employment maybe more vulnerable to an oil disruption. Although the results for oildependence are ambiguous, the analysis does find a significantrelationship between the impacts of an oil shock and how closely theeconomy is operating to its full employment level prior to thedisruption.