Which Oil Shocks are Recessionary, and Which are Inflationary

The role of oil price shocks in economic activity and inflation is controversial but a key input to economic policy. To clarify these relations, we employ a refined measure of oil shocks based on decomposing realized volatility and estimated using intraday oil futures data. In reconciling prior results, we find that shocks driven by oil price increases (decreases) are associated with rising (falling) inflation while only a symmetric volatility channel affects economic activity. We show that the inflationary (recessionary) effect of rising oil prices (price volatility), holds not only for the US economy, but for the rest of the world