Andrea De Michelis, Thiago Ferreira, and Matteo Iacoviello
Federal Reserve Board of Governors
We study the effects of oil prices on consumption across countries and U.S. states, by exploiting the time-series and cross-sectional variation in oil dependency of these economies. We build two large data sets: one with 55 countries over the years 1975-2018, and another with all U.S. states over the period 1989-2018. We then show that oil price declines generate positive effects on consumption in oil-importing economies, while depressing consumption in oil-exporting economies. We also document that oil price increases do more harm than the good afforded by oil price decreases both in the world and in U.S. aggregates.
JEL Code: Q43, E32, F40.
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