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Article

The Macroeconomics of Oil Shocks

Keith Sill

Senior Vice President of Research and Director of the Real-Time Data Research Center

Q1 2007

Business Review — For various reasons, oil-price increases may lead to significant slowdowns in economic growth. Five of the last seven U.S. recessions were preceded by significant increases in the price of oil.

In this article, Keith Sill examines the effect of changes in oil prices on U.S. economic activity, focusing on how runups in the price of oil can affect output growth and inflation. He also discusses the channels by which oil-price increases might affect the economy and the historical evidence on the relationship between oil prices, economic growth, and inflation.

This article appeared in the First Quarter 2007 edition of Business Review.

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