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Asset Value, Interest Rates and Oil Price Volatility

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  • VIPIN ARORA

Abstract

Simulations from a standard two-region model where producers respond to changes in interest rates are better able to match observed data than an identical model without supply-side responses. This indicates that incorporating the supply-side behaviour of oil producers is quantitatively important when endogenously modeling oil prices. These results have two implications. First, adding supply-side responses can change the oil price/output relationship, which is a continuing topic of research interest. Second, if production is unable to adjust to interest rate changes, an important explanatory factor of oil price volatility may be missing.

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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2011.00734.x
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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 87 (2011)
Issue (Month): s1 (09)
Pages: 45-55

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:s1:p:45-55

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  1. Vipin Arora & Rod Tyers, 2011. "Asset Arbitrage and the Price of Oil," CAMA Working Papers 2011-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc.
  3. Q. Farooq Akram, 2008. "Commodity prices, interest rates and the dollar," Working Paper 2008/12, Norges Bank.
  4. Naohisa Hirakata & Nao Sudo, 2009. "Accounting for Oil Price Variation and Weakening Impact of the Oil Crisis," IMES Discussion Paper Series 09-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
  5. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Working Paper 0710, Federal Reserve Bank of Cleveland.
  6. Robert Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," NBER Working Papers 10855, National Bureau of Economic Research, Inc.
  7. Kemfert, Claudia & Welsch, Heinz, 2000. "Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 641-660, November.
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Cited by:
  1. repec:acb:camaaa:2011-21 is not listed on IDEAS
  2. Vipin Arora & Rod Tyers, 2011. "Asset Arbitrage and the Price of Oil," CAMA Working Papers 2011-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  3. Arora, Vipin & Tanner, Matthew, 2011. "How important are real interest rates for oil prices?," MPRA Paper 35883, University Library of Munich, Germany.
  4. Vipin Arora & Pedro Gomis-Porqueras, 2011. "A Repayment Model of House Prices Oil Price Dynamics in a Real Business Cycle Model," Development Research Unit Working Paper Series 11-11, Monash University, Department of Economics.

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