The U.S. economy has experienced a reduction in volatility since the mid-1980s. In this paper we investigate the changes in the response of the economy to an oil price shock and the role of the systematic monetary policy response in accounting for changes in the response of output, prices, inventories, sales, and the overall decline in volatility. Our results suggest a smaller and more short-lived response of most macro variables during the Volcker-Greenspan period. It also appears that whereas the systematic monetary policy response dampened fluctuations in economic activity during the 1970s, it has had virtually no effect after the "Great Moderation."

This paper tests the three leading specifications of asymmetric and possibly nonlinear feedback from the real price of oil to U.S. industrial production and its sectoral components. We show that the evidence for such feedback is sensitive to the estimation period. Support for a nonlinear model is strongest for samples starting before 1973. Instead, using post-1973 data only, the evidence against symmetry becomes considerably weaker. For example, at the aggregate level, there is no evidence against the hypothesis of symmetric responses to oil price innovations of typical magnitude, consistent with results of Kilian and Vigfusson [Quantitative Economics, 2(3), 419-453 (2011)] for U.S. real GDP. There is strong evidence of asymmetries at the disaggregate level, however, especially for industries that are energy-intensive in production (such as chemicals) or that produce goods that are energy-intensive in use (such as transportation equipment). Our analysis suggests that these asymmetries may be obscured in the aggregate data and highlights the importance of developing multisector models of the transmission of oil price shocks.

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This paper extends the framework of Green and Porter (1984) and Porter (1983a) to nest the case of a cartel (OPEC) faced by a competitive fringe (non-OPEC oil producers). Estimation of a simultaneous equation switching regression model allows us to examine which market structure better characterizes the world oil market during the 1974-2004 period and to test whether switches between collusive and noncooperative behavior occurred. The null hypothesis that no switch occurred is rejected in favor of the alternative that both cooperative and non-cooperative behavior was observed. We …nd that, although there were periods in which oil prices were measurably higher due to collusion among OPEC members, overall OPEC has not been e¤ective in systematically raising prices above Cournot competition levels. Our results suggest that, on average over the period of study, OPEC's behavior is best described as Cournot competition in the face of a competitive fringe constituted by non-OPEC producers.JEL Classi…cation: D4, L11.

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