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The 2008 oil bubble: Causes and consequences

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  • Tokic, Damir
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    Abstract

    We argue that "the 2008 Oil Bubble" was directly and indirectly created by the Federal Reserve in response to deflationary risks that resurfaced after the housing bubble burst and the resulting credit crisis of 2008. Deflationary risks first appeared after the dot.com bubble burst in 2000 and after the terrorist attacks on September 11, 2001. Manipulation of the US dollar value has been one of the key emergency tools in the Fed's arsenal. During the entire period from 2000 to 2008, the US dollar has been falling, while the price of crude oil has been rising, with the culmination in July 2008. If other global central banks embrace the Fed's anti-deflationary strategies, the consequences could be dire for the global economy, potentially resulting in an ultimate gold bubble.

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    File URL: http://www.sciencedirect.com/science/article/B6V2W-508FKWS-3/2/bbcfd03e30f8c47cbe2ba3c465bf7874
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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 38 (2010)
    Issue (Month): 10 (October)
    Pages: 6009-6015

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    Handle: RePEc:eee:enepol:v:38:y:2010:i:10:p:6009-6015

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    Web page: http://www.elsevier.com/locate/enpol

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    Keywords: The oil bubble Deflation The Fed;

    References

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    1. J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," NBER Working Papers 2880, National Bureau of Economic Research, Inc.
    2. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
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    Cited by:
    1. Fang, Chung-Rou & You, Shih-Yi, 2014. "The impact of oil price shocks on the large emerging countries' stock prices: Evidence from China, India and Russia," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 330-338.
    2. Tokic, Damir, 2011. "Rational destabilizing speculation, positive feedback trading, and the oil bubble of 2008," Energy Policy, Elsevier, vol. 39(4), pages 2051-2061, April.

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