No. 975: The Distributional Effects of Oil Supply New Shocks

Theo Drossidis , Brunel University
Haroon Mumtaz , Queen Mary University of London, School of Economics & Finance
Angeliki Theophilopoulou , Brunel University

February 19, 2024

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Abstract

This paper uses high frequency data on the distribution of US income to investigate
the heterogeneous effects of oil supply news shocks. Using a FAVAR with an external instrument, We show that these shocks have large negative effects on the left and right tail of the distribution. For low income individuals, the effect is driven by a decline in wages and proprietor’s income, while a fall in corporate profits and interest income drives the effect for affluent individuals.

J.E.L classification codes: O23, E32, Q54

Keywords:Oil shock; income inequality; FAVAR; External instrument identification.