The Effect of Oil Supply Shocks on U.S. Economic Activity : What Have We Learned?

Estimated responses of real oil prices and US GDP to oil supply disruptions vary widely. We show that most variation is attributable to differences in identification assumptions and estimation techniques. Models that impose a large short-run price elasticity of oil supply imply a larger response of oil prices and a larger, longer-lived contraction in U.S. real GDP. We find that if we condition on a range of supply elasticity values supported by microeconomic estimates, the differences in the oil price responses diminishes. Longer lag lengths and loss function contribute to explain the differences in the response of U.S. real GDP