Date of Award
2014
Document Type
Master's Thesis
Degree Name
Master of Science in Applied Natural Resource Economics (MS)
College, School or Department Name
School of Business and Economics
Advisor
Mark C. Roberts
Abstract
This thesis examines the relationship between oil prices and economic activity, and it attempts to address the question: do increases in oil prices (oil shocks) precede U.S. recessions? This paper also applied macroeconomics, either through the direct use of a macroeconomic point of view or using a combination of mathematical and statistical models. Two mathematical and statistical models are used to determine the ability of oil prices to predict recessions in the United States. First, using the binary cyclical (Bry-Boschan method) indicator procedure to test the turning point of oil prices compared with turning points in GDP finds that oil prices almost always turn five month before a recession, suggesting that an oil shock might occur before a recession. Second, the Granger causality test shows that oil prices change do Granger cause U.S. recessions, indicating that oil prices are a useful signal to indicate a U.S. recession. Finally, combining this analysis with the literature, there are several potential explanations that the spike in oil prices result in slower GDP growth and are a contributing factor to U.S. recessions.
Recommended Citation
Suthijindawong, Thanyalak, "Do increases in oil prices precede U.S. recessions?", Master's Thesis, Michigan Technological University, 2014.