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The Three Epochs of Oil

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Author Info

  • Eyal Dvir

    ()
    (Boston College)

  • Ken Rogoff

    (Harvard University)

Abstract

We test for changes in price behavior in the longest crude oil price series available (1861-2008). We find strong evidence for changes in persistence and in volatility of price across three well defined periods. We argue that historically, the real price of oil has tended to be highly persistent and volatile whenever rapid industrialization in a major world economy coincided with uncertainty regarding access to supply. We present a modified commodity storage model that fully incorporates demand, and further can accommodate both transitory and permanent shocks. We show that the role of storage when demand is subject to persistent growth shocks is speculative, instead of its classic mitigating role. This result helps to account for the increased volatility of oil price we observe in these periods.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 706.

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Date of creation: 23 Apr 2009
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Handle: RePEc:boc:bocoec:706

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Web page: http://fmwww.bc.edu/EC/
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Related research

Keywords: Oil Price; Oil Shocks; Storage; Structural Change;

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References

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Citations

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Cited by:
  1. Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.
  2. Ansgar Belke & Daniel Gros, 2009. "A Simple Model of an Oil Based Global Savings Glut – The “China Factor” and the OPEC Cartel," Ruhr Economic Papers 0128, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. University of Minnesota & Radoslaw Stefanski, 2009. "Structural Transformation and the Oil Price," 2009 Meeting Papers 1050, Society for Economic Dynamics.
  4. Arezki, Rabah & Hadri, Kaddour & Loungani, Prakash & Rao, Yao, 2014. "Testing the Prebisch–Singer hypothesis since 1650: Evidence from panel techniques that allow for multiple breaks," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 208-223.
  5. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 331-352, 08.
  6. Dvir, Eyal & Rogoff, Kenneth, 2014. "Demand effects and speculation in oil markets: Theory and evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 113-128.
  7. Marc Gronwald, 2009. "Jumps in Oil Prices- Evidence and Implications," Ifo Working Paper Series Ifo Working Paper No. 75, Ifo Institute for Economic Research at the University of Munich.
  8. Roberto Iacono, 2012. "Is it really worse with a Bird in Hand? A comparison of fiscal rules for resource-rich economies," Working Paper Series 12612, Department of Economics, Norwegian University of Science and Technology.
  9. Christopher L. Foote & Jane S. Little, 2011. "Oil and the macroeconomy in a changing world: a conference summary," Public Policy Discussion Paper 11-3, Federal Reserve Bank of Boston.

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