We examine the effect of structural shocks in the crude oil market on the US state-level economic activity in slack and non-slack periods, using linear and state-dependent models. We find that oil supply shocks produce a persistent and significant drop in employment, while the decline in personal income appears ten quarters after the shock. In contrast, economic activity shocks lead to a substantial and consistent increase in employment and personal income. Analyzing these responses across oil and non-oil producing states, we observe that non-oil states are more sensitive to the state of the economy, particularly in response to oil supply shocks. Further analysis shows that variations in the dynamic responses across states exhibit a regional pattern. To identify the factors contributing to these variations between states, we regress the responses on a set of state-level covariates. Our results show that industry composition and demographic factors, including educational attainment and income concentration, shape states’ sensitivity to oil shocks, underscoring the role of economic structure in mediating the effects of oil price fluctuations.
JEL Classification: E32 Business Fluctuations; Cycles
AllcottH.KenistonD.2018. “Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America.”The Review of Economic Studies85: 695–731.
2.
AllozaM.2022. “Is Fiscal Policy More Effective during Recessions?”International Economic Review63: 1271–92.
3.
AlsalmanZ.HerreraA. M.RangarajuS. K.2023. “Oil News Shocks and the US Stock Market.”Energy Economics126: 106891.
4.
AlsalmanZ. N.KarakiM. B.2019. “Oil Prices and Personal Consumption Expenditures: Does the Source of the Shock Matter?”Oxford Bulletin of Economics and Statistics81: 250–70.
5.
AuerbachA. J.GorodnichenkoY.2012. “Measuring the Output Responses to Fiscal Policy.”American Economic Journal: Economic Policy4: 1–27.
6.
AutorD. H.DornD.HansonG. H.2016. “The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade.”Annual Review of Economics8: 205–240.
7.
BarroR. J.RedlickC. J.2011. “Macroeconomic Effects from Government Purchases and Taxes.”The Quarterly Journal of Economics126: 51–102.
8.
BarskyR. B.KilianL.2002. “Oil and the Macroeconomy since the 1970s.”Journal of Economic Perspectives18: 115–34.
9.
BaumeisterC.HamiltonJ. D.2019. “Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks.”American Economic Review109: 1873–910.
10.
BaumeisterC.KilianL.2016. “Lower Oil Prices and the US Economy: Is This Time Different?”Brookings Papers on Economic Activity2016: 287–357.
11.
BjørnlandH. C.NordvikF. M.RohrerM.2021. “Supply Flexibility in the Shale Patch: Evidence from North Dakota.”Journal of Applied Econometrics36: 273–92.
12.
BjørnlandH. C.SkrettingJ.2024. “The Shale Oil Boom and the US Economy: Spillovers and Time-Varying Effects.”Journal of Applied Econometrics39: 1000–1020.
13.
BjørnlandH. C.ThorsrudL. A.2016. “Boom or Gloom? Examining the Dutch Disease in Two-Speed Economies.”The Economic Journal126: 2219–56.
CaggianoG.CastelnuovoE.GroshennyN.2014. “Uncertainty Shocks and Unemployment Dynamics in US Recessions.”Journal of Monetary Economics67: 78–92.
17.
CarlinoG.DeFinaR.1999. “The Differential Regional Effects of Monetary Policy: Evidence from the US States.”Journal of Regional Science39: 339–58.
18.
CordenW. M.NearyJ. P.1982. “Booming Sector and De-Industrialisation in a Small Open Economy.”The Economic Journal92: 825–48.
19.
CurtisT.2015. “US Shale Oil Dynamics in a Low Price Environment.” OIES Paper: WPM 62, Oxford Institute for Energy Studies.
20.
CwiakC. L.AvonN.KellenC., et al. 2015. “The New Normal: The Direct and Indirect Impacts of Oil Drilling and Production on the Emergency Management Function in North Dakota.” Report, North Dakota State University Fargo, ND.
21.
De MichelisA.FerreiraT.IacovielloM.2020. “Oil Prices and Consumption across Countries and US States.”International Journal of Central Banking16: 3–43.
22.
DemirelU. D.2021. “The Short-Term Effects of Tax Changes: The Role of State Dependence.”Journal of Monetary Economics117: 918–34.
23.
EskandariO.2019. “State-Dependent Macroeconomic Effects of Tax Changes.”SSRN. doi:10.2139/ssrn.3374984.
24.
FeyrerJ.MansurE. T.SacerdoteB.2017. “Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution.”American Economic Review107: 1313–34.
25.
GhassibeM.ZanettiF.2022. “State Dependence of Fiscal Multipliers: The Source of fluctuations Matters.”Journal of Monetary Economics132: 1–23.
26.
GiljeE.ReadyR.RoussanovN.2016. “Fracking, Drilling, and Asset Pricing: Estimating the Economic Benefits of the Shale Revolution.” Technical Report, National Bureau of Economic Research, Cambridge, MA.
27.
GlaeserE. L.PonzettoG. A.TobioK.2014. “Cities, Skills and Regional Change.”Regional Studies48: 7–43.
28.
GüntnerJ. H.LinsbauerK.2018. “The Effects of Oil Supply and Demand Shocks on US Consumer Sentiment.”Journal of Money, Credit and Banking50: 1617–44.
29.
GuptaR.ShengX.van EydenR.WoharM.2021. “The Impact of Disaggregated Oil Shocks on State-Level Consumption of the United States.”Applied Economics Letters28: 1818–24.
30.
HaggertyJ. H.KroepschA. C.WalshK. B.SmithK. K.BowenD. W.2018. “Geographies of Impact and the Impacts of Geography: Unconventional Oil and Gas in the American West.”The Extractive Industries and Society5: 619–33.
31.
HamiltonJ. D.1983. “Oil and the Macroeconomy since World War II.”Journal of Political Economy91: 228–48.
32.
HerreraA. M.RangarajuS. K.2019. “The Quantitative Effects of Tax Foresight: Not All States are Equal.”Journal of Economic Dynamics and Control107: 103726.
33.
HerreraA. M.RangarajuS. K.2020. “The Effect of Oil Supply Shocks on US Economic Activity: What Have We Learned?”Journal of Applied Econometrics35: 141–59.
34.
JamesA.AadlandD.2011. “The Curse of Natural Resources: An Empirical Investigation of US Counties.”Resource and Energy Economics33: 440–53.
35.
JordàÒ. 2005. “Estimation and Inference of Impulse Responses by Local Projections.”American Economic Review95: 161–82.
36.
JordàÒ.TaylorA. M.2025. “Local Projections.”Journal of Economic Literature63: 59–110.
37.
KänzigD. R.2021. “The macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements.”American Economic Review111: 1092–1125.
38.
KänzigD. R.2025. “The Unequal Economic Consequences of Carbon Pricing.” Technical Report, National Bureau of Economic Research, Cambridge, MA.
39.
KarakiM. B.2018. “Oil Prices and State Unemployment Rates.”The Energy Journal39: 25–50.
40.
KilianL.2009. “Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market.”American Economic Review99: 1053–1069.
41.
KilianL.2022. “Facts and Fiction in Oil Market Modeling.”Energy Economics110: 105973.
42.
KilianL.2024. “How to Construct Monthly VAR Proxies Based on Daily Surprises in Futures Markets.”Journal of Economic Dynamics and Control168: 104966.
43.
KilianL.MurphyD. P.2012. “Why Agnostic Sign Restrictions Are Not Enough: Understanding the Dynamics of Oil Market VAR Models.”Journal of the European Economic Association10: 1166–88.
44.
KilianL.MurphyD. P.2014. “The Role of Inventories and Speculative Trading in the Global Market for Crude Oil.”Journal of Applied Econometrics29: 454–78.
45.
KilianL.ParkC.2009. “The Impact of Oil Price Shocks on the US Stock Market.”International Economic Review50: 1267–87.
46.
KlassA. B.MeinhardtD.2014. “Transporting Oil and Gas: US Infrastructure Challenges.”Iowa Law Review100: 947.
47.
KlepaczM.2021. “Price Setting and Volatility: Evidence from Oil Price Volatility Shocks.” International Finance Discussion Paper 1316, Board of Governors of the Federal Reserve System.
48.
KonradtM.Weder di MauroB.2023. “Carbon Taxation and Greenflation: Evidence from Europe and Canada.”Journal of the European Economic Association21: 2518–46.
49.
LusompaA.2023. “Local Projections, Autocorrelation, and Efficiency.”Quantitative Economics14: 1199–220.
50.
MetcalfG. E.StockJ. H.2023. “The Macroeconomic Impact of Europe’s Carbon Taxes.”American Economic Journal: Macroeconomics15: 265–86.
51.
MichaelsG.2011. “The Long Term Consequences of Resource-Based Specialisation.”The Economic Journal121: 31–57.
52.
MorettiE.2012. The New Geography of Jobs. Houghton Mifflin Harcourt.
53.
NotowidigdoM. J.2020. “The Incidence of Local Labor Demand Shocks.”Journal of Labor Economics38: 687–725.
54.
OwyangM. T.RameyV. A.ZubairyS.2013. “Are Government Spending Multipliers Greater during Periods of Slack? Evidence from Twentieth-Century Historical Data.”American Economic Review103: 129–34.
55.
OwyangM. T.ZubairyS.2013. “Who Benefits from Increased Government Spending? A State-Level Analysis.”Regional Science and Urban Economics43: 445–64.
56.
Plagborg-MøllerM.WolfC. K.2021. “Local Projections and VARS Estimate the Same Impulse Responses.”Econometrica89: 955–80.
57.
RameyV. A.ZubairyS.2018. “Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data.”Journal of Political Economy126: 850–901.
58.
RangarajuS. K.HerreraA. M.2021. “Tax News in Good and Bad Times.”Economics Letters207: 110031.
59.
SimsE.WolffJ.2018. “The State-Dependent Effects of Tax Shocks.”European Economic Review107: 57–85.
60.
TenreyroS.ThwaitesG.2016. “Pushing on a String: US Monetary Policy is Less Powerful in Recessions.”American Economic Journal: Macroeconomics8: 43–74.
61.
ZhouX.2020. “Refining the Workhorse Oil Market Model.”Journal of Applied Econometrics35: 130–40.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
