The relationship between the price of oil and the level of economic activity is a fundamental empirical issue in macroeconomics. Hamilton (1983) showed that oil prices had significant predictive content for real economic activity in the United States prior to 1972, whereas Hooker (1996) argued that the estimated linear relations between oil prices and economic activity appear much weaker after 1973. In the debate that followed, several authors suggested that the apparent weakening of the relationship between oil prices and economic activity is illusory, arguing that the true relationship between oil prices and real economic activity is asymmetric, with the correlation between oil price decreases and output significantly different from the correlation between oil price increases and output—see, for example, Mork (1989) and Hamilton (2003).
The effect of oil price shocks on economic activity: a local projections approach
