EMF OP 60: Oil Shocks and Real U.S. Income

Theanalysis explains how previous oil shocks have affected real U.S.income. Real income differs from aggregate economic output (GDP)because it includes the purchasing power losses associated with moreexpensive imported petroleum. Real income declines immediately duringthe same quarter as the oil price shock as opposed to the outputeffects, which are lagged over several quarters. These immediate lossescan be significant, reaching as much as 1.7% of the baseline value inthe same quarter, for a doubling of crude oil prices. Expandingcoverage to include purchasing power losses allows policy analysts toevaluate a range of different policy instruments that can influence oilprices, such as the building and release of the strategic petroleumreserve