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Federal Reserve Bank of Dallas
Working Papers
Industry Effects of Oil Price Shocks: Re-Examination
Soojin Jo
Lilia Karnizova
Abeer Reza

Sectoral responses to oil price shocks help determine how these shocks are transmitted through the economy. Textbook treatments of oil price shocks often emphasize negative supply effects on oil importing countries. By contrast, the seminal contribution of Lee and Ni (2002) has shown that almost all U.S. industries experience oil price shocks largely through a reduction in their respective demands. Only industries with very high oil intensities face a supply-driven reduction. In this paper, we re-examine this seminal findings using two additional decades of data. Further, we apply updated empirical methods, including structural factor-augmented vector autoregressions, that take into account how industries are linked among themselves and with the remainder of the macro-economy. Our results confirm the original finding of Lee and Ni that demand effects of oil price shocks dominate in all but a handful of U.S. industries.

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Soojin Jo & Lilia Karnizova & Abeer Reza, Industry Effects of Oil Price Shocks: Re-Examination, Federal Reserve Bank of Dallas, Working Papers 1710, 31 Jul 2017.
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Keywords: oil price shocks; SVAR; FAVAR; industry supply and demand
DOI: 10.24149/wp1710
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