Previous research shows that volatility in oil prices has tended to depress output, as measured by nonresidential investment and GDP. This is interpreted as evidence in support of the theory of real options in capital budgeting decisions, which predicts that uncertainty about, for example,...

Bernanke [Bernanke, Ben S. Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics 98 (1983), 85-106.] shows how uncertainty about energy prices may induce optimizing firms to postpone investment decisions, thereby leading to a decline in aggregate output. Elder and...