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Oil supply news in a VAR: Information from financial markets

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Author Info

  • Alessio Anzuini

    ()
    (Bank of Italy, Economic Research Department)

  • Patrizio Pagano

    ()
    (Bank of Italy, Economic Research Department)

  • Massimiliano Pisani

    ()
    (Bank of Italy, Economic Research Department)

Abstract

This paper analyzes the macroeconomic effects on the U.S. economy of news about oil supply by estimating a VAR. Information contained in daily quotations of oil futures contracts is exploited to estimate the dynamic path of oil prices following a shock. Hence, differently from the VAR literature on oil shocks we do not need to rely on recursive identification. Impulse response functions suggest that oil supply disruptions have stagflationary effects on the U.S. economy. Historical decomposition shows that oil shocks contributed significantly to the US recessions of the last thirty years, but not all exogenous increases in oil prices induced a recession. Finally, the contribution of oil shocks to inflation fluctuations seems to have declined over time.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 632.

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Date of creation: Jun 2007
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Handle: RePEc:bdi:wptemi:td_632_07

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Web page: http://www.bancaditalia.it
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Keywords: vector autoregression; oil shock; futures; news;

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References

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  1. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers 3844, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Francesco Lippi & Andrea Nobili, 2012. "Oil And The Macroeconomy: A Quantitative Structural Analysis," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1059-1083, October.
  2. Robert Anderton & Alessandro Galesi & Marco Lombardi & Filippo di Mauro, . "Key elements of global inflation," Discussion Papers 09/22, University of Nottingham, GEP.
  3. Christiane Baumeister & Gert Peersman, 2012. "Time-Varying Effects of Oil Supply Shocks on the U.S. Economy," Working Papers 12-2, Bank of Canada.
  4. Marco Lombardi & Chiara Osbat & Bernd Schnatz, 2012. "Global commodity cycles and linkages: a FAVAR approach," Empirical Economics, Springer, vol. 43(2), pages 651-670, October.
  5. Al-mulali, Usama & Che Sab, Normee, 2009. "The Impact of Oil Prices on the Real Exchange Rate of the Dirham: a Case Study of the United Arab Emirates," MPRA Paper 23493, University Library of Munich, Germany.
  6. Al-mulali, Usama & Che Sab, Che Normee, 2010. "The Impact of Oil Shocks on Qatar’s GDP," MPRA Paper 27822, University Library of Munich, Germany, revised 31 Dec 2010.
  7. Melolinna, Marko, 2008. "Using financial markets information to identify oil supply shocks in a restricted VAR," Research Discussion Papers 9/2008, Bank of Finland.
  8. Anzuini, Alessio & Lombardi, Marco J. & Pagano, Patrizio, 2010. "The impact of monetary policy shocks on commodity prices," Working Paper Series 1232, European Central Bank.
  9. Marko Melolinna, 2011. "Using Financial Markets Information to Identify Oil Supply Shocks in a Restricted VAR," Finnish Economic Papers, Finnish Economic Association, vol. 24(1), pages 33-54, Spring.
  10. Al-mulali, Usama, 2010. "The Impact of Oil Prices on the Exchange Rate and Economic Growth in Norway," MPRA Paper 24447, University Library of Munich, Germany.

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