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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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Related research

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

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References

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  1. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers 6559, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. University of Minnesota & Radoslaw Stefanski, 2009. "Structural Transformation and the Oil Price," 2009 Meeting Papers 1050, Society for Economic Dynamics.
  2. 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.
  3. Radoslaw Stefanski, 2013. "Online Appendix to "Structural Transformation and the Oil Price"," Technical Appendices 12-45, Review of Economic Dynamics.
  4. Michele Ruta & Anthony J venables, 2012. "International Trade in Natural Resources: Practice and policy," OxCarre Working Papers 084, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Rabah Arezki & Kaddour Hadri & Yao Rao, 2013. "Testing the Prebisch-Singer Hypothesis Since 1650: Evidence from panel techniques that allow for multiple breaks," Economics Series Working Papers OxCarre Research Paper 12, University of Oxford, Department of Economics.
  6. 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.
  7. Ansgar Belke & Daniel Gros, 2009. "A Simple Model of an Oil Based Global Savings Glut: The "China Factor" and the OPEC Cartel," Discussion Papers of DIW Berlin 911, DIW Berlin, German Institute for Economic Research.
  8. 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.
  9. 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.

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