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The New Palgrave Dictionary of Economics pp 9753–9759Cite as

Palgrave Macmillan

Oil and the Macroeconomy

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Nine out of ten of the US recessions since the Second World War were preceded by an upward spike in oil prices. One way to inquire whether this might be just a coincidence is with a statistical regression of real GDP growth rates (quoted at a quarterly rate) on lagged changes in GDP growth rates and lagged logarithmic changes in nominal oil prices. The results from an ordinary least squares (OLS) estimation of this relation for t = 1949:II to 1980:IV are as follows (standard errors in parentheses):

$$ {y}_t=\underset{(0.18)}{1.14}+\underset{(0.09)}{0.20}{y}_{t-1}+\underset{(0.09)}{0.05}{y}_{t-2}-\underset{(0.09)}{0.10}{y}_{t-3}-\underset{(0.09)}{0.19}{y}_{t-4}-\underset{(0.026)}{0.004}{o}_{t-1}-\underset{(0.026)}{0.027}{o}_{t-2}-\underset{(0.026)}{0.034}{o}_{t-3}-\underset{(0.027)}{0.065}{o}_{t-4}. $$

The coefficient on the fourth lag of oil prices (1ot − 4) is negative and highly statistically significant (t-statistic = − 2.4), and an F-test leads to a rejection of the null...

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    James D. Hamilton

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Hamilton, J.D. (2018). Oil and the Macroeconomy. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2119

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