Using Financial Markets Information to Identify Oil Supply Shocks in a Restricted VAR
AbstractThis paper introduces a methodology for identifying oil supply shocks in to a small open economy. Financial market information is used to construct an identification scheme that forces the response to an oil shock of the restricted VAR model to be the same as that implied by futures markets. Due to the identification scheme, the model is only partially identified, and confidence intervals for impulse responses are calculated by using a bootstrapping procedure. The methodology is applied in illustrative examples to Finland and Sweden in a simple 5-variable model that includes key domestic and international macroeconomic variables. While oil supply shocks have an effect on domestic inflation in these countries during the past decade or so, the effect on domestic GDP is ambiguous.
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Bibliographic InfoArticle provided by Finnish Economic Association in its journal Finnish Economic Papers.
Volume (Year): 24 (2011)
Issue (Month): 1 (Spring)
Find related papers by JEL classification:
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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