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Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions

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Lippi, Francesco
Nobili, Andrea

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Abstract

We consider an economy where the oil price, industrial production, and other macroeconomic variables fluctuate in response to a variety of fundamental shocks. We estimate the effects of different structural shocks using robust sign restrictions suggested by theory using US data for the 1973-2007 period. The estimates show that identifying the shock underlying the oil price change is important to predict the sign and the magnitude of its correlates with the US production. The results offer a natural explanation for the smaller correlation between oil prices and US production in the recent years compared to the seventies.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6830.

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Date of creation: May 2008
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Handle: RePEc:cpr:ceprdp:6830

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Related research
Keywords: Business cycle; Oil prices; Sign Restrictions; Structural VAR;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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  1. Francis, Neville & Ramey, Valerie A., 2005. "Is the technology-driven real business cycle hypothesis dead? Shocks and aggregate fluctuations revisited," Journal of Monetary Economics, Elsevier, vol. 52(8), pages 1379-1399, November. [Downloadable!] (restricted)
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  2. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October. [Downloadable!] (restricted)
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  3. Bernanke, Ben S & Gertler, Mark & Watson, Mark W, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 287-91, April.
  4. Dedola, Luca & Neri, Stefano, 2007. "What does a technology shock do? A VAR analysis with model-based sign restrictions," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 512-549, March. [Downloadable!] (restricted)
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  5. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October. [Downloadable!] (restricted)
  6. Cunado, Juncal & Perez de Gracia, Fernando, 2003. "Do oil price shocks matter? Evidence for some European countries," Energy Economics, Elsevier, vol. 25(2), pages 137-154, March. [Downloadable!] (restricted)
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  7. Canova, Fabio & Nicolo, Gianni De, 2002. "Monetary disturbances matter for business fluctuations in the G-7," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1131-1159, September. [Downloadable!] (restricted)
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  8. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 15(4), pages 19-36.
  9. Herrera, Ana Mar?a & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The ?Great Moderation?," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 107-137, February. [Downloadable!]
  10. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers 6559, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May. [Downloadable!] (restricted)
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  12. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February. [Downloadable!] (restricted)
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(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. Ziesemer, Thomas, 2009. "Growth with imported resources: On the sustainability of U.S. growth and foreign debt," UNU-MERIT Working Paper Series 028, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
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