Updated: A paper by James Hamilton argued that the recent oil price shock was a key factor putting the US into recession – at least between Q4 2007 and Q3 2008. It received a lot of coverage, including some from us.
Merril Lynch’s London-based commodities team has joined the club:
In our opinion, the Great Recession of 2008-09 is the result of a simultaneous
shock of surging energy prices and mounting credit problems (Chart 8). The crisis was precipitated by the collapse of Lehman Brothers, but it was the oil price spike that killed emerging market growth. We firmly believe that the world economy would not have contracted so sharply in 4Q08 without the tremendous oil price spike to $150/bbl that occurred in 3Q08 (Chart 9). [Scroll down for charts]
But what’s interesting is their analysis of what this could mean. The central problem of this crisis, they say, is “a fundamental misallocation of capital”.
