In “neoclassical synthesis” terms, an oil shock is an aggregate-supply (AS) shock. If the aggregate-demand (AD) curve does not move, then an AS curve implies lower real GDP and a higher price level, whereas an AD shock that causes a recession implies lower real GDP and a lower price level. This is very simplistic, but may be helpful in structuring thoughts.
Also, maybe this is helpful information:
“All but one of the 11 postwar recessions” in the USA “were associated with an increase in the price of oil...”(exception: 1960). 11 of the 12 major oil price shocks that Hamilton identifies were accompanied by U.S. recessions (exception: “2003 oil price increase associated with the Venezuelan unrest and second Persian Gulf War.”)
(Hamilton, 2011, Historical Oil Shocks, NBER working paper 16790)
But of course this alone doesn’t say much about causality or effects.
In “neoclassical synthesis” terms, an oil shock is an aggregate-supply (AS) shock. If the aggregate-demand (AD) curve does not move, then an AS curve implies lower real GDP and a higher price level, whereas an AD shock that causes a recession implies lower real GDP and a lower price level. This is very simplistic, but may be helpful in structuring thoughts.
Also, maybe this is helpful information:
“All but one of the 11 postwar recessions” in the USA “were associated with an increase in the price of oil...”(exception: 1960).
11 of the 12 major oil price shocks that Hamilton identifies were accompanied by U.S. recessions (exception: “2003 oil price increase associated with the Venezuelan unrest and second Persian Gulf War.”)
(Hamilton, 2011, Historical Oil Shocks, NBER working paper 16790)
But of course this alone doesn’t say much about causality or effects.