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Oil consumption, economic growth, and oil futures: The impact of long-run oil supply uncertainty on asset prices

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  • Ready, Robert C.

Abstract

High levels of uncertainty about long-run oil supplies from 2005 to 2012 coincided with significant changes in oil futures markets. Motivated by this fact, this paper provides new evidence on the relations between oil consumption, oil prices, and economic growth, and builds on this evidence to develop a quantitative real business cycle model to study oil price risk. Calibrated model results can match relations between oil prices and economic quantities, and can rationalize behavior in equity and futures markets over this period as a consequence of changing risk premia driven by an increase in long-run oil supply uncertainty.

Suggested Citation

  • Ready, Robert C., 2018. "Oil consumption, economic growth, and oil futures: The impact of long-run oil supply uncertainty on asset prices," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 1-26.
    • Handle: RePEc:eee:moneco:v:94:y:2018:i:c:p:1-26
    DOI: 10.1016/j.jmoneco.2017.09.010
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    3. Ames, Matthew & Bagnarosa, Guillaume & Matsui, Tomoko & Peters, Gareth W. & Shevchenko, Pavel V., 2020. "Which risk factors drive oil futures price curves?," Energy Economics, Elsevier, vol. 87(C).
    4. Liu, Zhen & Tang, Yuk Ming & Chau, Ka Yin & Chien, Fengsheng & Iqbal, Wasim & Sadiq, Muhammad, 2021. "Incorporating strategic petroleum reserve and welfare losses: A way forward for the policy development of crude oil resources in South Asia," Resources Policy, Elsevier, vol. 74(C).
    5. Gao, Lin & Hitzemann, Steffen & Shaliastovich, Ivan & Xu, Lai, 2022. "Oil volatility risk," Journal of Financial Economics, Elsevier, vol. 144(2), pages 456-491.
    6. Czudaj, Robert L., 2019. "Crude oil futures trading and uncertainty," Energy Economics, Elsevier, vol. 80(C), pages 793-811.
    7. Wei, Ping & Qi, Yinshu & Ren, Xiaohang & Gozgor, Giray, 2023. "The role of the COVID-19 pandemic in time-frequency connectedness between oil market shocks and green bond markets: Evidence from the wavelet-based quantile approaches," Energy Economics, Elsevier, vol. 121(C).
    8. Gonzalo Cortazar & Cristobal Millard & Hector Ortega & Eduardo S. Schwartz, 2019. "Commodity Price Forecasts, Futures Prices, and Pricing Models," Management Science, INFORMS, vol. 65(9), pages 4141-4155, September.
    9. Sriket, Hongsilp & Suen, Richard M.H., 2022. "Sources of economic growth in models with non-renewable resources," Journal of Macroeconomics, Elsevier, vol. 72(C).
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    More about this item

    Keywords

    Oil prices; Production-based asset pricing; Long-run risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

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