The impact of oil shocks on the Spanish economy

This paper analyses the impact of oil price shocks on both the GDP growth and on inflation in the economy of Spain and its seventeen regions. The Qu and Perron (2007) and the Bai and Perron (1998, 2003a and 2003b) methods identify different periods across the sample. Evidence of a diminishing effect of oil price shocks on GDP growth and on inflation is found from the 1970s until the mid 1980s. However, in contrast with previous literature, we find a renewed effect on both these macroeconomic variables after the mid 80s. In Spain, it recovers some of its initial importance in the second half of the 1990s for GDP and between 1986 and 1994 and the 2000s for inflation. In the regions, the influence of oil price shocks on the GDP progressively disappears while the impact on inflation decreases from 1986 onwards but becomes significant again ten years later. The most outstanding result is that oil price movements explain at least some of the recent inflation. Therefore, policy measures to control the economic impact of oil shocks should be implemented in the future.