Relying on standard regression techniques, I estimate the effect of oil price shocks on GDP. present findings based on both aggregated data from 1970 to present, and disaggregated periods associated with different oil shock events. I find that the oil price increases of 2007-2008 are predictive of a significant underperformance of GDP in 2009 (a rather safe prediction at this juncture!) Specifically, my estimates are that quarterly GDP performance bottoms in 2009q3 at more than 10% below trend; and that GDP for the whole year of 2009 will be almost 7% below trend.
Below I list the magnitude of the shocks (measured in standard deviations of my variable) for the period 2007q4 to 2009q1.
| Period | Oil Shock in S.D. |
| 2007q4 | 2.70 |
| 2008q1 | 1.81 |
| 2008q2 | 5.93 |
| 2008q3 | 2.50 |
| 2008q4 | -0.33 |
| 2009q1*est. | -0.33 |
Based on a regression of quarterly data from 1970-2008 I found the estimated effects on GDP of a one standard deviation oil shock. I list the estimated effect (based on a best fit analysis of the data) for quarters 1-8 after the shock. These are not the cumulative effects; each represents an effect on a particular quarter.
| Quarters after shock | Effect on GDP of a one standard deviation oil shock |
| 1 | -0.65% |
| 2 | -0.33% |
| 3 | -0.91% |
| 4 | -1.10% |
| 5 | -0.36% |
| 6 | -0.31% |
| 7 | -0.20% |
| 8 | -0.18% |
Finally, I list the net predicted effect on GDP in 2009 based on this data:
| Period | Predicted effect (quarterly) of the 2007-2008 oil shock on GDP | Year over year predicted effect on trend GDP (trend GDP~3%) |
| 2008q2 | -2.2% | |
| 2008q3 | -7.6% | |
| 2008q4 | -8.4% | |
| 2009q1 | -9.2% | -6.9% (2008q2 to 2009q1) |
| 2009q2 | -10.1% | -8.8% (2008q3 to 2009q2) |
| 2009q3 | -5.3% | -8.2% (2008q4 to 2009q3) |
| 2009q4 | -2.1% | -6.7% (2009) |
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