---
title: "Oil Prices and Consumer Spending"
authors: "Yash P. Mehra; Jon D. Petersen"
source: "Federal Reserve Bank of Richmond Economic Quarterly"
source_url: "https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_quarterly/2005/summer/pdf/mehrapetersen.pdf"
paper_id: "Richmond Fed Economic Quarterly 91(3), Summer 2005"
harvested: 2026-09-01
year: 2005
keywords: [oil prices, consumer spending, GDP, expenditure share, energy, staples]
pdf_url: "https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/economic_quarterly/2005/summer/pdf/mehrapetersen.pdf"
---
## Abstract

Quantifies the consumer-spending channel of oil price shocks. Working through the consumption channel, the authors estimate that a 10 percent increase in the price of oil is associated with real GDP 0.5 to 1.0 percentage point lower than it would otherwise be (vs. Hamilton 2003's 1.4pp estimate including all channels). Key context: the *size of the effect scales with oil's expenditure share of GDP* — the same percentage price shock has a smaller macroeconomic footprint when oil absorbs a smaller share of output, which is why the 2000s-era shocks produced milder recessions than the 1970s shocks.

## Why it's in the StratMac library

- Directly motivates the middle-choice rescale: expenditure share (price × volume ÷ GDP, in %) is the economically meaningful "recognizable number" counterpart to the unitless `*_GDP` ratio.
- Provides the magnitude story for the staple-cost stress narrative: rising staple/GDP = rising macro vulnerability, with a calibrated GDP impact per unit price move.