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Why the nature of oil shocks matters

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This article studies the impact of oil shocks on the macroeconomy in two ways insofar unexploited in the literature. The analysis is conducted at the global level, and it explicitly accounts for the potentially changing nature of oil shocks. Based on an original world GDP series and a grouping of oil shocks according to their nature, we find that oil supply shocks negatively impact world growth, contrary to oil demand shocks, procyclical in their nature. This result is robust at the national level for the US. Furthermore, endogenous monetary policy is shown to have no countercyclical effects in the context of an oil demand shock.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2009-02.

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Date of creation: 2009
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Handle: RePEc:fce:doctra:0902

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Keywords: Oil shocks; Oil demand shocks; Oil supply shocks; Causality;

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  17. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
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  19. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June.
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