How do consumers assess the macroeconomic effects of oil price fluctuations? Evidence from US survey data

We use survey data to study how consumers assess the macroeconomic effects of oil market shocks on the U.S. economy using a vector autoregressive model. To structurally decompose oil price changes into oil supply shocks, oil-specific demand shocks, and global business cycle shocks, we impose zero and sign restrictions, as well as elasticity bounds. We find that survey-based measures of inflation and unemployment expectations increase in response to shocks that result in higher oil prices, where revisions in unemployment expectations are less pronounced in response to oil-specific demand shocks and global business cycle shocks. We also find that our measure of interest rate expectations increases in response to global business cycle shocks and, temporarily, in response to oil-specific demand shocks. Following oil supply shocks, however, interest rate expectations decline. Overall, the responses of the expectation measures are consistent with the actual developments.