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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)

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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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Paper provided by Bank of Italy, Economic Research Department 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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Related research
Keywords: vector autoregression; oil shock; futures; news;

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Find related papers by JEL classification:
C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Melolinna, Marko, 2008. "Using financial markets information to identify oil supply shocks in a restricted VAR," Research Discussion Papers 9/2008, Bank of Finland. [Downloadable!]
  2. Francesco Lippi & Andrea Nobili, 2009. "Oil and the macroeconomy: a quantitative structural analysis," Temi di discussione (Economic working papers) 704, Bank of Italy, Economic Research Department. [Downloadable!]
  3. C. Baumeister & G. Peersman, 2008. "Time-Varying Effects of Oil Supply Shocks on the US Economy," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/515, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
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