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Business cycles: the role of energy prices
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Abstract
Oil price shocks have figured prominently U.S. business cycles since the end of World War II—although the relationship seems to have weakened during the 1990s. In addition the economy appears to respond asymmetrically to oil price shocks, rising oil prices hurt economic activity more than falling oil prices help it. This section of the Encyclopedia of Energy sorts through an extensive economics literature that relates oil price shocks to aggregate economic activity. It examines how oil price shocks create business cycles, why they seem to have a disproportionate effect on economic activity, why the economy responds asymmetrically to oil prices, and why the relationship between oil prices and economic activity may have weakened. It also addresses the issue of developing energy policy to mitigate the economic effects of oil price shocks.Petroleum industry and trade