Abstract:
This paper investigates the dynamic relationship between oil prices and growth across
the U.S. States using a panel data framework. We use both annual and quarterly data
spanning the periods 1973 to 2013 and 1948Q1 to 2013Q4, respectively. Following
Hatemi-J (2012), we allow for the presence of asymmetry in the cointegration and
causality testing by decomposing oil prices into cumulative sums of positive and
negative oil prices. The null hypothesis of no cointegration is rejected. The long-run
coefficients are found to be statistically significant across all empirical models, with
positive oil prices reducing output, while negative oil prices increasing output. We
also find evidence of both short- and long-run bidirectional causality between
aggregate oil prices and output. However, there is evidence of unidirectional causality
both from positive and negative oil prices to output based on annual data. The
quarterly data generated slightly different result, indicating both long- and short-run
bidirectional causality between positive and negative oil prices and output.
