Chen, Natalie, Graham, Liam, 1968- and Oswald, Andrew J. (2007) Oil prices, profits, and recessions: an inquiry using terrorism as an instrumental variable. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

Nearly all post-war recessions have been preceded by oil-price shocks, but is this because spikes in the price of petroleum cause economic downturns? Most research has ignored an identification problem: oil prices and the state of the world economy are endogenously determined. This paper uses terrorist incidents as an instrumental variable. In an international panel of industries, we show that after correction for simultaneity bias — though not before — the price of oil has large negative effects upon profitability. Our results seem to lend support to the claim that oil-price spikes can be a source of recessions.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HF Commerce
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Petroleum products -- Prices, Oil industries, Petroleum industry and trade, International economic relations, Business -- Effect of terrorism on, Business cycles
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	6 April 2007
Number:	No.809
Number of Pages:	32
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Version or Related Resource:	Chen, Natalie, et al. (2008). Oil prices, profits, and recessions : an inquiry using terrorism as an instrumental variable. Coventry: Centre for Economic Policy Research. (CEPR Discussion Paper, no.DP6937).
Related URLs:	Other Repository
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URI:	http://wrap.warwick.ac.uk/id/eprint/1405

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