Macroeconomic impacts of oil prices and underlying financial shocks
AbstractWe extend Kilian's (2009) framework to identify an exogenous shock arising from changes in financial market conditions and examine the consequent macroeconomic impacts of oil price changes. We find that a financial shock is a key determinant of oil prices and its macroeconomic impact is as important as the impact of other underlying shocks. The results indicate that policymakers must explicitly consider changes in financial market conditions when analyzing the impacts of oil shocks. Further, a stabilisation policy must be forward-looking and tailored to underlying causes because different shocks have different impacts at different time horizons.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 29 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/intfin
Oil price; Financial shock; Financialization of commodity markets; Kilian's two-step approach;
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