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What drives oil prices? Emerging versus developed economies

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  • Knut Are Aastveit
  • Hilde C. Bjoernland

Abstract

This paper explores the role of demand from emerging and developed economies as drivers of the real price of oil. Using a method that allows us to identify and compare 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 adverse oil market 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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2013/112013.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-11.

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Length: 42 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-11

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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. Dreger, Christian & Rahmani, Teymur, 2014. "The impact of oil revenues on the Iranian economy and the Gulf states," Discussion Papers 349, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  2. Hilde C. Bjørnland & Leif Anders Thorsrud, 2013. "Boom or gloom? Examining the Dutch disease in a two-speed economy," Working Papers 0015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  3. Eickmeier, Sandra & Kühnlenz, Markus, 2013. "China's role in global inflation dynamics," Discussion Papers 07/2013, Deutsche Bundesbank, Research Centre.

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