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  4. October 2018
  5. Oil and Macroeconomic (In)stability

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Oil and Macroeconomic (In)stability

  • Hilde C. Bjørnland
  • Vegard H. Larsen
  • Junior Maih
American Economic Journal: Macroeconomics
vol. 10, no. 4, October 2018
(pp. 128–51)
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Abstract

We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a Markov Switching Rational Expectation New-Keynesian model we revisit the timing of the Great Moderation and the sources of changes in the volatility of macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocks are recurrent sources of economic fluctuations. The most important factor reducing overall variability is a decline in the volatility of structural macroeconomic shocks. A change to a more responsive (hawkish) monetary policy regime also played a role.

Citation

Bjørnland, Hilde C., Vegard H. Larsen, and Junior Maih. 2018. "Oil and Macroeconomic (In)stability." American Economic Journal: Macroeconomics, 10 (4): 128–51. DOI: 10.1257/mac.20150171

Additional Materials

JEL Classification

  • E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy
  • Q35 Hydrocarbon Resources
  • Q43 Energy and the Macroeconomy
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