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Oil Price Shocks



I've recently encountered a working paper on the subject of "oil price shocks" prepared by economists affiliated with China's Shanghai Tech University. There is something in it that surprised me a bit.

Specifically: the authors do not believe that a sudden increase in the mean price of petroleum (that is, averaging across different local markets within a nation etc.) hampers economic growth. Nor do they believe that a sudden decrease in the mean assists growth. They claim to have solid empirical evidence for this negative conclusion, though their data is confusing to me and I offer no assessment here. 

But if it is valid, the conclusion means that "oil price shocks" as generally understood do not exist. That strikes me as very odd. It would seem intuitively plausible that a sudden increase in the value of any commodity integral to the system of production would ... well ... hamper production. More expensive input, less total output. Why is that intuition not valid? 

If I had to guess, I would guess this. One might argue that the increase in the value of the output only affects who is productive, not overall productivity. However important oil is for the system as a whole, one might would naturally posit that it is more vital for some industries than other, simply because nature is never tidy and symmetrical. One might posit of any input X that there are certain sectors (A sectors) that are relatively insensitive to cost changes in X compared to other sectors (B sectors). One might than posit that a sudden increase in the price of X will benefit A and harm B, but will do so in ways that will net out to zero. 

Just spitballing....

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