Oil prices in the real economy

The empirical model is estimated using quarterly time series of the macro variables and crude oil futures. All data are downloaded from the Thompson Reuters Datastream. Summary statistics are presented in Table 1. Figure 1 shows the West Texas Intermediate (WTI) oil futures prices. We also use data for US output, US inflation, and US Federal Funds rate, from 1964Q1 to 2022Q1. This allows the effect of the oil shocks of the 1970s to be analyzed. The Fed Funds rate is specified as a quarterly decimal fraction (the annual rate in percent divided by 400). We generate the US output gap by applying the HP filter to log US GDP, then subtracting this measure of potential output from log GDP. US inflation is the annual log difference of the US implicit GDP price deflator.

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