Not All States Are Alike: The Effect of Oil Price Shocks on State-Level Economy

Transcription

1 Not All States Are Alike: The Effect of Oil Price Shocks on State-Level Economy (tentative) Arlan Brucal 1 Michael Roberts 1 1 Department of Economics University of Hawaii at Manoa First draft: March 8, 2016 This version: April 5, 2016

2 Research Question How Do Oil Price Shocks Influence State-Economies?

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4 The Problem A convenient way to know cause-and-effect...

5 The Problem But oil price may be endogenous...

6 The Problem But oil price may be endogenous...

7 The Problem States are not isolated...

8 Strong negative relationship in Source: Hamilton (1983)

9 The relationship weakens in Changes in Imported Crude Oil Prices (solid lines) and US Recessions (shaded areas), Quarter-to-quarter % change q1 1980q1 1985q1 1990q1 1995q1 2000q1 2005q1 2010q1 2015q1 Source: EIA, NBER

10 Energy Production-Consumption Ratio (Oil-Based Only), by State (4.00,8.00] (2.00,4.00] (1.00,2.00] (0.50,1.00] (0.25,0.50] (0.05,0.25] (0.00,0.05] [0.00,0.00] Production-consumption ratios are generated by taking the sum of all energy produced within the state from (in Billion British Thermal Units or BBTUs) divided by the sum of all energy consumed (end-use) within the same period. Oil based sources include crude oil, and natural gas. Source: State Energy Data System (SEDS), EIA.

11 GSP Growth Rate and Imported Oil Price Imported Crude Oil Price (US$/Barrel) Imported Crude Oil Price (left axis) National Average Net Consumers Net Producers GDP growth rate(%) Net producers are those with average energy production/consumption>=1 from 1960 to The ratio the sum of all energy produced from oil-based source (Crude Oil and Natural Gas) from divided by sum of energy consumed from Crude Oil, Natural Gas and Petroleum in the same period. Imported Price of Crude Oil is measured at 1992$. Source: EIA, SEDS.

12 GDP Growth Rate during the 1980 Oil Price Surge (5.00,30.00] (2.00,5.00] (0.50,2.00] (0.00,0.50] (-0.50,0.00] (-2.00,-0.50] (-5.00,-2.00] [-30.00,-5.00] Energy sources include Crude Oil/Petroleum and Natural Gas. Imported Price of Crude Oil is measured at 2014$. Source: EIA, SEDS.

13 GDP Growth Rate during the 1986 Oil Price Drop (5.00,30.00] (2.00,5.00] (0.50,2.00] (0.00,0.50] (-0.50,0.00] (-2.00,-0.50] (-5.00,-2.00] [-30.00,-5.00] Energy sources include Crude Oil/Petroleum and Natural Gas. Imported Price of Crude Oil is measured at 2014$. Source: EIA, SEDS.

14 Moran Scatter Plot, 1980 Price Surge and 1986 Price Drop Moran's I = P-value = Spatially lagged GSP growth 1 0 Spatially lagged GSP growth Moran's I = P-value = GSP growth GSP growth

15 Moran Scatter Plot, Moran's I

16 Empirical Strategy

17 Near-VAR Estimation Strategy (Kilian, 2015) with Spatial Autoregresive Model (Lesage and Pace, 2009) VAR estimation of orthogonalized residuals to disentangle oil supply, industrial commodity demand, and oil-specific demanddriven fluctuations in imported crude oil price. Estimate the effect of each shock to Gross State Product (GSP) growth rate Estimate the effect of spillovers using SAR

18 VAR Estimation VAR model based on monthly data z t = ( prod t,rea t,rpo t ) Sample period: Structural VAR: A 0 z t = α + 24 i=1 Assume recursive structure of A 1 0 s.t. e t = e prod t et rea e rpo t α = α 21 α 22 0 α 31 α 32 α 33 A i z t i + ε t ε t ε oil supply shock εt commodities demand shock oil-specific demand shock t

19 Spatial Autoregression Model Measure of annual shocks by averaging orthogonalized structural innovations: ζˆ kt = 1 12 ˆε k,t, k = 1,2,3 12 t=1 Spatial Dynamic Panel Data Model for Unanticipated Oil Price Shocks: y t = 3 k=1 φ k ˆ ζkt + τy t 1 + λ Wy + ρwy t 1 + X t β + γt + αi N + u t

20 The Weight Matrix 0 w 1,2 w 1,3... w 1,n w 2,1 0 w 2,3... w 2,n W = w 3,1 w 3, w 3,n w n,1 w n,2 w n, w i,j = M im j d 2 ij where M denotes the economic size of states i & j (measured as sum of GSP from , in 2014$), and d is the distance (measured in terms of geographic and shipping cost) between the most populous urban areas of states i and j. The sum of each row takes the value of 1 (row standardization).

21 Data

22 Variables Included VAR: Monthly Global Production of Oil (Million Barrels/day), EIA Index of Real Economic Activity, (Kilian, 2015). Price of Imported Crude Oil in Jan 1981$. SAR: Gross State Product, , BEA State-level Production and Consumption of Crude Oil and Natural Gas, EIA-SEDS, Shipping Cost, FEDEX (January 2016)

23 Variables for the VAR Model, World Oil Production Percent Change m1 1980m1 1985m1 1990m1 1995m1 2000m1 2005m1 2010m1 2015m1 Index (from Kilian (2009) Index of Global Real Economic Activity 1975m1 1980m1 1985m1 1990m1 1995m1 2000m1 2005m1 2010m1 2015m1 50 Real Price of Oil in Jan US$ m1 1980m1 1985m1 1990m1 1995m1 2000m1 2005m1 2010m1 2015m1 Notes: 1. World Crude Oil Production as reported by the US Department of Energy. 2. The measure of the Index of Real Economic Activity is based on Kilian (2015) and obtained from www-personal.umich.edu/ lkilian/reaupdate.txt 3. The oil price series is the refiner acquisition cost of imported oil as reported by the US Department of Energy.

24 Structural VAR Residuals, Annual Average, Oil Supply Shocks Annual Average Commodities Demand Shocks Oil-Specific Demand Shocks

25 Results and Discussion

26 Dependent Variable: Gross State Product Growth Variables OLS SAR 50 states 48 states Shipping Geographic Oil Supply Shock 2.094*** 1.898*** 0.857*** 1.443*** 0.892*** 1.444*** (0.3078) (0.2278) (0.2598) (0.2444) (0.2674) (0.2390) Agg. Demand Shock (0.1530) (0.1575) (0.1520) (0.1520) (0.1568) (0.1650) Oil -Specific Demand Shock (0.1554) (0.1346) (0.1101) (0.1132) (0.1120) (0.1138) Oil Supply Shock* Prod/Cap *** *** *** *** *** *** (0.4284) (0.1061) (0.0713) (0.0796) (0.0786) (0.0791) Agg. Demand Shock* Prod/Cap (0.1272) (0.1813) (0.1571) (0.1667) (0.1733) (0.1674) Oil-Specific*Prod/Cap 0.668* 0.421** 0.402*** 0.473** 0.456*** 0.485** (0.2655) (0.1452) (0.1191) (0.1476) (0.1303) (0.1498) Lagged GSP growth 0.241*** 0.270*** 0.299*** 0.205*** 0.293*** 0.208*** (0.0430) (0.0385) (0.0322) (0.0292) (0.0344) (0.0287) Spatial lag (Lambda) 0.742*** 0.255** 0.726*** 0.260** (0.1391) (0.0948) (0.1440) (0.0899) Spatial lag (t 1) (Rho) *** *** (0.0536) (0.0559) Observations Adj. R.sq GMM-AIC GMM-BIC Hansen J-statistic p-value of J-statistic Note: Heteroskedasticity-consistent standard errors are in parentheses Results for the SAR model are generated via GMM (Lee & Yu, 2014). The 3rd thru 7th columns (SAR) use Gravity Model-based spatial weight matrix, with Shipping cost and Geographic distance as measures of economic distance, respectively.

27 Determining Marginal Effects of a Unit Shock Increase Rewriting the spatial econometric model: Y t = (I λw) 1 (τi + ρw)(y t 1 ) + (I λw) 1 ( 3 k=1 φ k ˆ ζkt + X t β)+r If λ,ρ = 0 [ Y ˆζ... Y 1k ˆζ = φ k I N (short term) Nk ]t [ ] E[Y ] ˆζ... E[Y ] 1k ˆζ = (I N τi) 1 φ k I N (long term term) Nk If ρ,λ 0, Total Effect (Direct Effect + Spillovers): [ Y ˆζ... Y 1k ˆζ = (I λ W) Nk ]t 1 [φ k I N ] (short term) [ ] E[Y ] ˆζ... E[Y ] 1k ˆζ = (I N τi λ W ρw) 1 [φ k I N ] (long term) Nk

28 The Effect of a Unit Oil-Supply Shock on State s GDP growth (Assume: ρ = 0) 2 NY CA 0 KS TX ND Marginal Effect, D GSP growth Short-run Long-run LA OK NM WY Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model assuming ρ = 0. The 95% CI was generated using clustered standard errors.

29 The Effect of a Unit Industrial Commodity Demand Shock on State s GDP growth (Assume: ρ = 0) 2 Short-run Long-run Marginal Effect, D GSP growth NY CA KS TX ND LA OK NM WY Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model assuming ρ = 0. The 95% CI was generated using clustered standard errors.

30 The Effect of a Unit Oil-Specific Demand Shock on State s GDP growth (Assume: ρ = 0) 6 5 Marginal Effect, D GSP growth Long-run Short-run KS TX ND LA OK NM WY 0 NY CA Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model assuming ρ = 0. The 95% CI was generated using clustered standard errors.

31 The Effect of a Unit Oil-Supply Shock on State s GDP growth (short term) 2 NY CA Direct Effect Direct Effect + Spillovers KS TX Marginal Effect, D GSP growth ND LA OK NM WY Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model. The 95% CI was generated using clustered standard errors.

32 The Effect of a Unit Industrial Commodities Demand Shock on State s GDP growth (short term) 2 Direct Effect Direct Effect + Spillovers Marginal Effect, D GSP growth NY CA KS TX ND LA OK NM WY Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model. The 95% CI was generated using clustered standard errors.

33 The Effect of a Unit Oil-Specific Demand Shock on State s GDP growth (short term) 4 Direct Effect Direct Effect + Spillovers 3 WY Marginal Effect, D GSP growth 2 1 NY CA KS TX ND LA OK NM Oil-based Energy Production/Consumption Note: The estimates are generated from the Spatial Autoregressive (SAR) model. The 95% CI was generated using clustered standard errors.

34 What did we find (thus far)? We are definitely picking up something! 1. Oil price increases have different impact depending on the underlying cause. 2. States respond differently to different oil price shocks. 3. The direct impact of an oil price shock may ultimately change with spillovers from other states.

35 Next Steps: 1. Further disentangle speculative shocks into oil supply and aggregate demand 2. Consider applying the same method to employment changes (for robustness check)

36 Mahalo!

37 Appendices

38 Top Energy Producers (Oil and NG) State Rank Total Energy Produced Production / (in 100,000 BBTUs) Consumption TX 1 6, LA 2 3, OK 3 1, CA 4 1, AK 5 1, NM 6 1, WY KS CO UT ND MS AR PA AL Ranking is based on the sum of energy produced (in BTUs) from The highlighted states are top energy producers but net consumers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

39 Top Energy Producers (Per Capita,Oil and NG) State Rank Production per Capita Production / (BBTUs/person) Consumption AK WY LA NM OK TX ND KS MT CO UT WV AR MS CA Ranking is based on the sum of energy produced per capita (in BTUs) from The highlighted states are top energy producers but net consumers of energy (based on the ratio of the sum of energy produced and energy consumed from ). In 2012, an ave. American uses 148 MBTUs per year.

40 Top Energy Consumers (Oil and NG) State Rank Total Energy Consumed Production / (in 100,000 BBTUs) Consumption TX 1 3, CA 2 2, LA 3 1, NY 4 1, IL 5 1, OH 6 1, PA 7 1, MI NJ FL IN GA MA MO VA Ranking is based on the sum of energy consumed (in BTUs) from The highlighted states are top energy consumers but net producers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

41 Top Energy Consumers (Per Capita, Oil and NG) State Rank Consumption per Capita Production / (BBTUs/person) Consumption AK LA WY TX KS OK NM ND MT DE IN NE IA AR MS Ranking is based on the sum of energy consumed per capita (in BTUs) from , divided by the sum of population in the same period. The highlighted states are top energy consumers but net producers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

42 Bottom Energy Producers (Oil and NG) State Rank Total Energy Produced Production / (in 100,000 BBTUs) Consumption VT HI ID NJ ME NC DE WI NH MN CT GA RI IA SC Ranking is based on the sum of energy produced (in BTUs) from The highlighted states are top energy producers but net consumers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

43 Bottom Energy Consumers (Oil and NG) State Rank Total Energy Consumed Production / (in 100,000 BBTUs) Consumption VT SD RI NH DE HI ND ID NV MT ME WY WV UT NE Ranking is based on the sum of energy consumed (in BTUs) from The highlighted states are top energy consumers but net producers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

44 Bottom Energy Consumers per capita (Oil and NG) State Rank Total Energy Consumed Production / (in 100,000 BBTUs) Consumption FL NY AZ NC MD CT NH SC VA RI VT MA HI OR TN Ranking is based on the sum of energy consumed per capita (in BTUs) from The highlighted states are top energy consumers but net producers of energy (based on the ratio of the sum of energy produced and energy consumed from ).

45 What has been done thus far? At the aggregate level: Hamilton (1983) Mork (1989) confirmed Hamilton(1983) using data up to 1988 Hooker (1996) oil-price relationship is weaker in than to Hamilton (1996) using NOPI suggests that the negative relationship is strong Barsky and Kilian (2001) and Kilian (2008) exogenous oil supply shocks play little in evolution of US economy since the 1970s. Kilian (2015) disentangle demand shocks from supply shocks, explaining why the relationship is unstable over years

46 What has been done thus far? At the disaggregate level: Lee and Ni(2002) used industry-level data Bachmeier and Cha (2011) use disaggregate inflation data At the state level: Brown and Yucel (1995) used Input-Output Analysis

47 Total Energy Production (Oil-Based Only), in Million BBTUs, by State, (200.00,800.00] (100.00,200.00] (50.00,100.00] (10.00,50.00] (1.00,10.00] (0.50,1.00] (0.01,0.50] [0.00,0.01] Oil based sources include crude oil, and natural gas. Source: State Energy Data System (SEDS), EIA.

48 Our contribution 1. State-level response to different structural shocks underlying real oil price changes 2. Measurement of effects emanating from interaction between states

49 Energy Production and Consumption, by State TX 600 Energy Produced (in Million BBTUs) WY AK NM OK LA CA 0 NJ MI PA OH IL NY Energy Consumed (in Million BBTUs) Note: Production and consumption are the sum of all energy produced and consumed within the state from (in Billion British Thermal Units or BBTUs), respectively. Sources of energy include natural gas and crude oil/petroleum. Source: State Energy Data System (SEDS), EIA.

50 Energy Production and Consumption per Capita, by State 5000 AK per Capita Production (in Million BTUs) MS AR NE IAIN DE NM OK ND KS MT per Capita Consumption (in Million BTUs) TX WY LA Note: Total energy Production is the sum of all energy produced and consumed within the state from (in Billion British Thermal Units or BBTUs), respectively. Consumption per capita is calculated as the ratio between the sum of total energy consumed in and the sum of population during the same period. Sources of energy include natural gas and crude oil/petroleum. Source: State Energy Data System (SEDS), EIA.

51 Employment Growth Rate and Imported Oil Price, Net Producers of Oil-based Energy Imported Crude Oil Price (US$/Barrel) AK WY LA NM ND OK Imported Crude Oil Price (Left Axis) Employment Growth Rate Net producers are those with average energy production/consumption>=1. The ratio the sum of all energy produced from oil-based source (Crude Oil and Natural Gas) from divided by sum of energy consumed from Crude Oil, Natural Gas and Petroleum in the same period. Imported Price of Crude Oil is measured at 1992$. AK, ND, NM, LA, OK, and WY have production/consumption ratio>=2.

52 Employment Growth Rate and Imported Oil Price, Net Consumers of Oil-based Energy Imported Crude Oil Price (US$/Barrel) DE MI SD IA NV WA Imported Crude Oil Price (Left Axis) GDP growth rate(%) Net consumers are those with average energy production/consumption<1 from 1960 to The ratio the sum of all energy produced from oil-based source (Crude Oil and Natural Gas) from divided by sum of energy consumed from Crude Oil, Natural Gas and Petroleum in the same period. Imported Price of Crude Oil is measured at 2014$. Source: EIA, SEDS.

53 Employment Growth Rate and Imported Oil Price, Net Consumers of Oil-based Energy Net Producers Net Consumers Imported Crude Oil Price (US$/Barrel) Imported Crude Oil Price (Left Axis) GDP growth rate(%) Net producers are those with average energy production/consumption>=1 from 1960 to The ratio the sum of all energy produced from oil-based source (Crude Oil and Natural Gas) from divided by sum of energy consumed from Crude Oil, Natural Gas and Petroleum in the same period. Imported Price of Crude Oil is measured at 2014$. Source: EIA, SEDS.