Sunday, 14 August 2011

Oil price & Economy

Economic consequences of recent oil price changes

Hamilton refers to this paper Nonlinearities and the Macroeconomic Effects of Oil Prices

His message is not optimistic:

Even using the 1-year threshold, the above relation still says that the 2010-2011 oil price increases would not be enough by themselves to bring about a recession, but would only mean slow growth for the end of this year and beginning of next. But of course, the concern is that this is not the only shock that may be hitting the economy. I continue to worry a great deal about possible consequences of credit disruptions and fiscal contraction from the unsettled situation in Europe.

It's worries about these developments, and what they would mean for world petroleum demand, that have been the most important factors bringing oil prices down. And that most assuredly should not be read as good news for the U.S. economy.

Brilliant, but sadly, pessimistic.

Recession risk unless oil prices fall further

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