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On Oil Price Shocks: The Role of Storage

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  • Deren Unalmis
  • Ibrahim Unalmis
  • Derya Filiz Unsal

Abstract

Building on recent work on the role of speculation and inventories in oil markets, the paper embeds a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. The paper finds that business-cycle-driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982–2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. The results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Economic Review.

Volume (Year): 60 (2012)
Issue (Month): 4 (December)
Pages: 505-532

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Handle: RePEc:pal:imfecr:v:60:y:2012:i:4:p:505-532

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References

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  1. Richard Clarida & Jordi Gali & Mark Gertler, 2001. "Optimal Monetary Policy in Closed versus Open Economies: An Integrated Approach," NBER Working Papers 8604, National Bureau of Economic Research, Inc.
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  20. Deren Unalmis & Ibrahim Unalmis & D. Filiz Unsal, 2009. "On the Sources of Oil Price Fluctuations," IMF Working Papers 09/285, International Monetary Fund.
  21. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
  22. Fattouh, Bassam & Kilian, Lutz & Mahadeva, Lavan, 2012. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," CEPR Discussion Papers 8916, C.E.P.R. Discussion Papers.
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Cited by:
  1. Ron Alquist & Olivier Coibion, 2013. "The Comovement in Commodity Prices," IMF Working Papers 13/140, International Monetary Fund.
  2. Kilian, Lutz & Lee, Thomas K, 2013. "Quantifying the Speculative Component in the Real Price of Oil: The Role of Global Oil Inventories," CEPR Discussion Papers 9297, C.E.P.R. Discussion Papers.
  3. Ron Alquist & Olivier Coibion, 2014. "Commodity-Price Comovement and Global Economic Activity," NBER Working Papers 20003, National Bureau of Economic Research, Inc.

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