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Macroeconomic shocks in an oil market var

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  • Melolinna, Marko
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    Abstract

    This paper studies oil market and other macroeconomic shocks in a structural vector autoregression with sign restrictions. It introduces a new indicator for oil demand, and uniquely, performs a sign restriction set-up with a penalty function approach in an oil market vector autoregression. The model also allows for macroeconomic shocks in the US. The results underline the importance of the source of an oil shock for its macroeconomic consequences. Oil supply shocks have been less relevant in driving real oil prices, and had less of an effect on US inflation than demand shocks. Overall, the effects of oil shocks on US real activity have been relatively limited, as also highlighted by a counterfactual experiment of recent oil market developments. JEL Classification: C01, C32, E32

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 1432.

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    Date of creation: May 2012
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    Handle: RePEc:ecb:ecbwps:20121432

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    Related research

    Keywords: Bayesian econometrics; business cycle; oil demand shocks; oil supply shocks;

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    1. Kilian, Lutz & Lewis, Logan, 2009. "Does the Fed Respond to Oil Price Shocks?," CEPR Discussion Papers 7594, C.E.P.R. Discussion Papers.
    2. Lutz Kilian & Daniel P. Murphy, 2012. "Why Agnostic Sign Restrictions Are Not Enough: Understanding The Dynamics Of Oil Market Var Models," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 10(5), pages 1166-1188, October.
    3. Francesco Lippi & Andrea Nobili, 2012. "Oil And The Macroeconomy: A Quantitative Structural Analysis," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 10(5), pages 1059-1083, October.
    4. Renee Fry & Callum Jones & Christopher Kent, 2010. "Inflation in an Era of Relative Pirce Shocks," CAMA Working Papers 2010-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. 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, Ghent University, Faculty of Economics and Business Administration 08/515, Ghent University, Faculty of Economics and Business Administration.
    6. Lombardi, Marco J. & Van Robays, Ine, 2011. "Do financial investors destabilize the oil price?," Working Paper Series, European Central Bank 1346, European Central Bank.
    7. Knut Are Aastveit, 2013. "Oil price shocks and monetary policy in a data-rich environment," Working Paper, Norges Bank 2013/10, Norges Bank.
    8. G. Peersman & I. Van Robays, 2009. "Oil and the Euro Area Economy," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 09/582, Ghent University, Faculty of Economics and Business Administration.
    9. Kilian, Lutz, 2009. "Oil Price Shocks, Monetary Policy and Stagflation," CEPR Discussion Papers 7324, C.E.P.R. Discussion Papers.
    10. C. Baumeister & G. Peersman & -, 2010. "Sources of the Volatility Puzzle in the Crude Oil Market," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 10/634, Ghent University, Faculty of Economics and Business Administration.
    11. Kilian, Lutz & Murphy, Dan, 2010. "The Role of Inventories and Speculative Trading in the Global Market for Crude Oil," CEPR Discussion Papers 7753, C.E.P.R. Discussion Papers.
    12. Kilian, Lutz, 2006. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," CEPR Discussion Papers 5994, C.E.P.R. Discussion Papers.
    13. Juan F. Rubio-Ramírez & Daniel F.Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," Working Paper, Federal Reserve Bank of Atlanta 2008-18, Federal Reserve Bank of Atlanta.
    14. repec:acb:camaaa:2010-38 is not listed on IDEAS
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    Cited by:
    1. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2013. "Dissecting Corn Price Movements with Directed Acyclic Graphs," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C., Agricultural and Applied Economics Association 151279, Agricultural and Applied Economics Association.

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