There Is Some Economic Research Which Suggests That Oil Prices

question 43

Essay

There is some economic research which suggests that oil prices play a central role in causing recessions in developed countries. Some of this work suggests that it is only oil price increases that matter and even more specifically, that it is the percentage point difference between oil prices at date t and the maximum value over the previous year. Realizing that energy prices in general can fluctuate quite dramatically in both directions and that geographic areas also benefit substantially from oil price decreases, you decide to estimate the following distributed lag model using annual data (numbers in parenthesis are HAC standard errors): $\begin{array} { c } \hat { \mathrm { Y } } _ { \mathrm { t } } = 3.39 - 0.009 ( \text { Poil } / C P I ) \mathrm { t } - 0.028 ( \text { Poil } / C P I ) \mathrm { t } - 1 \\( 0.27 ) ( 0.010 ) \quad ( 0.011 ) \\\mathrm { t } = 1960 - 2008 , R ^ { 2 } = 0.15 , \text { SER } = 1.88\end{array}$
a. What is the impact effect of a 25 percent increase in real oil prices?
b. What is the predicted cumulative change in GDP Growth over two years of this effect?
c. The HAC F-statistic is 4.07. Can you reject the null hypothesis that oil price changes have no effect on real GDP growth? What is the critical value you considered? Is there any reason why you should be cautious using an F-test in this case, given the sample period?

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Definitions:

Departmental Contribution

The amount of profit or revenue generated by a specific department, minus the direct expenses associated with that department.

Overhead

Represents the indirect costs associated with production, such as utilities, rent, and administrative expenses that cannot be directly traced to a specific product.

Direct Expenses

Expenses that can be directly traced to producing specific goods, services, or units of production without any allocation.

Departmental Income Statements

Financial reports that detail the revenue, expenses, and net income for specific departments within an organization.