Abstract:
In this study, we analyse the impact of oil price uncertainty (as measured by an observable
measure of oil price volatility, i.e. realised volatility) on United States state-level real consumption
by accounting for oil dependency. We account for both the long- and short-run dynamics of the
state-level consumption function using the panel Pooled Mean Group estimator. The analysis
makes use of a novel dataset including housing and stock market wealth at the state level covering
the quarterly period 1975:Q1 to 2012:Q2, supplemented with an annual dataset up to 2018.
We simultaneously estimate the long-run relationship and short-run impact of oil price volatility
at the state-level conditional upon their oil dependency. We find that the negative impact of
volatility is most severe for the states of Wyoming, Alaska and New Mexico, while the negative
impact is least for Illinois, New York and Nebraska. States with lower per capita income and
consumption expenditure, notably in the Southeast and Southwest region of the country are
exposed to be more vulnerable to the negative impact of adverse developments and uncertainty
in the oil market, as they may have less access to a stock of wealth and other means as recourse.
Heterogenous responses, therefore, necessitate additional state-level response besides the
national response to oil uncertainty.
