z-logo
Premium
Oil prices and European household consumption expenditures
Author(s) -
Vizek Maruška,
Lee Junsoo,
Payne James E.
Publication year - 2020
Publication title -
opec energy review
Language(s) - English
Resource type - Journals
eISSN - 1753-0237
pISSN - 1753-0229
DOI - 10.1111/opec.12170
Subject(s) - economics , consumption (sociology) , shock (circulatory) , oil price , econometrics , wealth effect , debt , monetary economics , macroeconomics , medicine , social science , sociology
This study examines the influence of changes in oil prices on total household consumption along with its sub‐components from 1996 to 2018, a period characterised in the literature by the declining impact of oil price shocks on macroeconomic activity. Using several dynamic panel VAR econometric approaches, we examine the role of oil prices alongside income, wealth and debt on household consumption expenditures of 30 European countries. Results from the Granger causality tests and impulse response analysis suggest an unanticipated increase in oil prices lowers household consumption. These results are robust to changes in proxies for income, wealth and oil prices, variable ordering, estimation method and the addition of household debt service. Moreover, the inclusion of a Fourier function to the baseline panel specifications to control for unobserved non‐linear structural breaks does not change our main findings. A threshold panel VAR model with median oil price changes used as a threshold indicator suggests the reaction of household consumption to oil price shocks is regime‐dependent; i.e., consumption only reacts to oil price shocks during periods when oil prices grow faster than the median rate of change. All consumption sub‐components decrease in response to increasing oil prices, but as expected, the consumption of durable goods exhibits the largest decline after an oil price shock.

This content is not available in your region!

Continue researching here.

Having issues? You can contact us here