April 20, 2007
How shocking?
As oil surged towards $80 a barrel last year, people worried about whether the world economy could cope. The oil shock, along with the US housing crash, was among the reasons cited by Nouriel Roubini of New York University here on his blog (some content requires subscription) and in a piece for the FT, arguing that a US recession was coming.
Now Lutz Kilian of the University of Michigan has shed interesting light on the debate. He argues in a recent paper that not all oil shocks are alike. Oil price surges are more often a result of demand-side factors, such as a strong world economy or precautionary stock-building, than of supply-side disruption. In particular, the run-up in prices this decade has been largely caused by strong global growth.
As James D.Hamilton of the University of California at San Diego, observes on his blog, one implication is that the real threat posed by the latest oil price surge has not been a recession, but higher inflation.
The US housing crash, however, may be another story….
