By Natalie Minyu Li and Eva Miao-Shan Lin. New York University.
As the most major source of energy, crude oil has a significant impact on political and economic dynamics around the globe. The price of oil, therefore, directly and indirectly affects our daily lives. Higher oil prices reduce discretionary income while driving up prices of other consumer goods and services, thereby impacting domestic consumption. In this paper, we hypothesize that the real price of imported crude oil negatively influences personal consumption expenditure within the United States. To test the theory, we present a least squares model by regressing oil prices as well as other macroeconomic sets of time series data against personal consumption expenditure. The results indicate a structural change in 1980, aligning with the introduction of regulations for crude oil price control following the OPEC embargo. Our results are significant at the 99% confidence interval that real imported crude oil prices negatively impact real domestic consumer expenditure.
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