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What drives oil prices? Emerging versus developed economies

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Author Info

  • Knut Are Aastveit

    ()

  • Hilde C. Bjørnland

    ()

  • Leif Anders Thorsrud

    ()

Abstract

We analyze the importance of demand from emerging and developed economies as drivers of the real price of oil. Using a method that allows us to identify demand from different groups of countries across the world, we find that demand from emerging economies (most notably from Asian countries) is more than twice as important as demand from developed countries in accounting for the fluctuations in the real price of oil and in oil production. Furthermore, we find that different geographical regions respond differently to oil supply shocks and oil-specific demand shocks that drive up oil prices, with Europe and North America being more negatively affected than emerging economies in Asia and South America. We demonstrate that this heterogeneity in responses is not only attributable to differences in energy intensity in production across regions but also to degree of openness and the investment share in GDP.

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Bibliographic Info

Paper provided by Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School in its series Working Papers with number 0007.

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Length: 39 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:bny:wpaper:0007

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Keywords: Oil prices; emerging and developed countries; demand and supply shocks; factor augmented vector autoregressions;

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References

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Citations

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Cited by:
  1. Hilde C. Bjørnland & Leif Anders Thorsrud, 2013. "Boom or gloom? Examining the Dutch disease in a two-speed economy," CAMA Working Papers 2013-76, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Eickmeier, Sandra & Kühnlenz, Markus, 2013. "China's role in global inflation dynamics," Discussion Papers 07/2013, Deutsche Bundesbank, Research Centre.

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