Impact of oil price volatility on state-level consumption of the United States: The role of oil dependence

van Eyden, Reneé and Gupta, Rangan and Sheng, Xin and Wohar, Mark E. (2021) Impact of oil price volatility on state-level consumption of the United States: The role of oil dependence. Energy Exploration and Exploitation, 39 (3). pp. 962-974. ISSN 2048-4054

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In this study, we analyse the impact of oil price uncertainty (as measured by an observable measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption by accounting for oil dependency. We account for both the long- and short-run dynamics of the state-level consumption function using the panel Pooled Mean Group estimator. The analysis makes use of a novel dataset including housing and stock market wealth at the state level covering the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018. We simultaneously estimate the long-run relationship and short-run impact of oil price volatility at the state-level conditional upon their oil dependency. We find that the negative impact of volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative impact is least for Illinois, New York and Nebraska. States with lower per capita income and consumption expenditure, notably in the Southeast and Southwest region of the country are exposed to be more vulnerable to the negative impact of adverse developments and uncertainty in the oil market, as they may have less access to a stock of wealth and other means as recourse. Heterogenous responses, therefore, necessitate additional state-level response besides the national response to oil uncertainty.

Item Type: Journal Article
Keywords: Oil price volatility, oil dependency, US, state-level consumption, uncertainty, cointergration, growth, tests
Faculty: Faculty of Business & Law
SWORD Depositor: Symplectic User
Depositing User: Symplectic User
Date Deposited: 04 Oct 2021 12:48
Last Modified: 10 Feb 2022 14:48

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