Sunday, May 22, 2011

Oil Prices, Oil Shocks, and Recessions

James Hamilton's work [1][2][3][4] comes highly recommended by Corrections.  Most interestingly comes the observation that ten of the last eleven recessions have been preceded by oil price increases.  Below, see a graphic describing oil prices and their trend (click to enlarge).  
More cogently, the deviations from HP-filtered oil prices compared against recessions (click to enlarge)

1 comment:

  1. Do they have a suggestion about the relationship? I could imagine oil prices being a driving force for recession since oil prices are such a vital input. But it could also be that when a recession is looming OPEC predicts lower demand and pulls back supply.