Are the responses of the U.S. economy asymmetric in energy price increases and decreases?

Abstract

How much does real gross domestic product (GDP) respond to unanticipated changes in the real price of oil? Commonly used censored oil price vector autoregressive models suggest a substantial decline in real GDP in response to unexpected increases in the real price of oil, yet no response to unexpected declines. We show that these estimates are invalid. Based on a structural model that encompasses both symmetric and asymmetric models as special cases, correctly computed impulse responses are of roughly the same magnitude in either direction, consistent with formal tests for symmetric responses. We discuss implications for theoretical models and for policy responses to energy price shocks.

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