Last April I described new research on the role of oil prices in the recent recession. Here's an update on what's happened since then.

In a paper presented at the Brookings Institution last spring, I examined the post-sample forecasting performance of an equation originally published in 2003, which relates real GDP to past values of GDP and oil prices. I noted in April that if you had known in October 2007 the values of GDP through 2007:Q3 and what was about to happen to oil prices through 2008:Q2, you could have used that historical relation to predict the value of U.S. real GDP for 2008:Q3 with an accuracy better than 99.5%.

Solid line: 100 times the natural log of real GDP. Dotted line: dynamic forecast (1- to 9-quarters ahead) based on coefficients of univariate AR(4) estimated 1949:Q2 to 2001:Q3 and applied to ...

AES Corporation’s (AES) adjusted EPS of 26 cents in the third quarter of fiscal 2009 was in line with the Zacks Consensus EPS estimate for the quarter. However, adjusted EPS for the quarter fell short by five cents compared to the year-ago EPS of 31 cents. The year-ago adjusted EPS had been boosted by 6 cents from currency transaction losses, 2 cents from incremental losses and a penny from mark-to-market losses. In comparison, the reported quarter’s EPS was affected by 3 cents from currency transaction gain and 2 cents from disposition losses. This was partially offset by 3 cents from mark-to-market losses.  In the reported quarter, consolidated revenue decreased $481 million year-over-year to $3.8 billion. Of the downside, $367 million was due to the strengthening of the U.S. dollar relative to the Brazilian real, which depreciated 13%. Also, lower commodity input prices translated into lower revenues at ...

The following two charts (and the comments in between them) are part of a very interesting article by James Hamilton. The collapse in oil prices last fall acted as a key economic stabilizer and helped ameliorate the economic decline. It showed up in two key places. The first was in the trade deficit numbers, which have shown a very dramatic improvement over the last year (see here and here). The other place it showed up was in retail sales, since a dollar spent at the gas pump is a dollar that can not be spent elsewhere. Since last Christmas, prices at the pump have climbed sharply, as shown in the first graph. While prices are still far below the levels of a year ago, the current levels are high enough to start hurting, especially those who have seen their incomes drop due to the ...

Often after a sharp economic downturn we observe an equally dramatic recovery. But nobody can claim to be seeing that so far in the currently available data.

Since the beginning of April, we've been discussing one potentially favorable indicator in the form of new claims for unemployment insurance. In each of the last 6 recessions, the 4-week average of this series reached a peak less than 8 weeks before the economic recovery began. None of the readings over the last 8 weeks exceeded the value reached April 9, consistent with the hypothesis that we are past the peak in new claims for this cycle.

Black line: 4-week average of seasonally adjusted weekly initial claims for unemployment insurance, from Department of Labor via Webstract. Shaded areas correspond to recessions as judged by the National Bureau of Economic Research.

On the

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This is the first in what I'm planning will be a series of posts discussing the contribution that the energy price spike of 2008 made to our present economic difficulties. In this first installment, I revisit a very interesting research paper on the response of consumer spending to energy price increases written by Lutz Kilian (Professor of Economics at the University of Michigan), and Paul Edelstein (Senior Economist for Decision Economics). I first brought this paper to the attention of Econbrowser readers in the spring of 2007. I thought now would be a good time to take a look at how well the equations in Edelstein and Kilian's paper can describe what we saw happen in the later part of 2007 and first half of 2008.

Edelstein and Kilian summarized the historical correlations between energy prices and economic activity in terms of

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