Monday, May 11, 2015

Oil and consumer spending

James Hamilton has a report on the effect of oil prices on consumer spending.  Using a VAR to estimate the structural relationship between consumer spending and oil prices the effect of the 2006-07 oil prices increase and the recent decrease is assessed against the actual performance. Half of the 2007-09 decline in consumer spending is attributed to oil price increase.  The recent rise in US consumer spending appears to be a little less than would be expected, suggesting, in Hamilton's opinion, that people are not confident that lower prices will be sustained.

I am still looking to test the relative influence of oil prices and financial crisis on economic performance.  I suggest that a panel of countries GDP (relative to trend) and estimates of the size of the financial sector as well as the relative importance of oil in the economy as a test.  The latter is the most difficult to assess and model.

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