Cross-country differences in the effects of oil shocks

Abstract

We compare the macroeconomic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in the economy. The results crucially depend on the underlying source of the oil price shift. When a rise in oil prices is caused by increased global economic activity or a rise in oil-specific demand, almost all countries experience respectively a temporary increase and transitory decline of real GDP. The role of oil and other forms of energy cannot explain the differences in the effects of both shocks across countries. In contrast, this role is very important to explain asymmetries in the effects of exogenous oil supply shocks. Whereas net oil and energy-importing countries typically face a permanent fall in economic activity, the impact is insignificant or even positive in net energy-exporting countries. In addition, countries that improved their net energy-position the most over time, became less vulnerable to oil supply shocks relative to other countries.