AEI Study: Hedging against Sudden Oil Price Increases to Prevent Job Losses

At a time when President Obama is proposing oil and gas offshore drilling off the U.S. coastline, I thought you might be interested in a just released study by AEI adjunct scholar Marc D. Weidenmier, an associate professor of economics at Claremont McKenna College who is also a research associate at the National Bureau of Economic Research.

Since WWII, every recession but one has been preceded by a run in oil prices. In Hedging Against Peak Oil Shocks, Weidenmier studies how increases in the price of oil affect employment and unemployment, both in energy and non-energy producing states.

He finds that:

  • Oil shocks have different effects on energy and non-energy producing states.

  • Residents of non-energy producing states do not fare as well as energy producing states because they do not place enough of their assets in energy stocks that would allow them to hedge against sudden oil price increases.

  • Energy production increases during peak oil shocks help residents in energy producing states moderate year-to-year fluctuations in income (income smoothing), and balance out spending and savings (consumption smoothing).

  • Energy-producing neighboring states benefit from the wealth created during peak oil shocks.

Weidenmier concludes that to avoid the negative effect of sudden oil price increases:

  • Non-energy producing states should increase the share of energy stocks in their investment portfolios.

  • The size of the energy sector expands during a period when oil prices rise while the rest of the economy shrinks. An increase in domestic energy production should protect most Americans from the effects of oil prices hikes by smoothing out incomes and consumption, because the growing energy sector helps prop up other areas in the economy by increasing the demand for goods and services in non-oil industries.

Professor Marc Weidenmier is available for interviews and can be contacted directly at [email protected]. For additional help or other media inquiries, please contact Sara Huneke at [email protected] (202.862.4870).

###

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Event Registration is Closed
Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.