Oil Prices and Personal Consumption Expenditures: Does the Source of the Shock Matter?

This paper studies the effect of structural oil shocks on personal consumption expenditures (PCE). First, we estimate a nonlinear simultaneous equation model, compute impulse responses by Monte Carlo integration, and conduct a test of the symmetry of the impulse response functions. We find that aggregate PCE responds asymmetrically to positive and negative oil‐specific demand shocks. Second, we find that aggregate PCE responds negatively to positive oil demand shocks, while adverse oil supply shocks are of limited effect. Third, we find important heterogeneity in the magnitude, sign and timing of the disaggregate PCE responses to structural shocks in the crude oil market. Our results clearly indicate that the response of PCE to an unexpected oil price increase depends on the source of the oil price shock. Our findings are robust to different nonlinear transformations for the real price of oil.