THE IMPACT OF OIL PRICE SHOCKS ON THE U.S. STOCK MARKET*

Authors

  • Lutz Kilian,

    1. University of Michigan, U.S.A., and CEPR; Korea University, Korea
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  • Cheolbeom Park

    1. University of Michigan, U.S.A., and CEPR; Korea University, Korea
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    • 1

      We thank the editor and three anonymous referees as well as Ana-María Herrera for helpful comments on an earlier draft of this article. Cheolbeom Park acknowledges financial support from Korea University. Please address correspondence to: Lutz Kilian, Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109-1220. Phone: 734-647-5612. Fax: 734-764-2769. E-mail: lkilian@umich.edu.


  • *

    Manuscript received June 2007; revised July 2008.

Abstract

It is shown that the reaction of U.S. real stock returns to an oil price shock differs greatly depending on whether the change in the price of oil is driven by demand or supply shocks in the oil market. The demand and supply shocks driving the global crude oil market jointly account for 22% of the long-run variation in U.S. real stock returns. The responses of industry-specific U.S. stock returns to demand and supply shocks in the crude oil market are consistent with accounts of the transmission of oil price shocks that emphasize the reduction in domestic final demand.

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