In search of a critical value for the real crude oil price for the United States

Abstract

Applying the GARCH(1,1) model, this article finds that a higher real oil price may have a positive or negative impact on the US real output and that the critical value of the real oil price for output maximization is estimated to be $50.09 per barrel. Hence, real crude oil prices of $54.90 in 2006 and $59.07 in 2007 are expected to affect real output negatively. In addition, more deficit spending, real depreciation, a higher real stock price and a lower expected inflation rate would cause real output to rise.