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Oil Shocks in a Global Perspective

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  • Tobias N. Rasmussen
  • Agustin Roitman

Abstract

Using a comprehensive global dataset, we outline stylized facts characterizing relationships between crude oil prices and macroeconomic developments across the world. Approaching the data from several angles, we find that the impact of higher oil prices on oil-importing economies is generally small: a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less. While cross-country differences in impact are found to depend mainly on the relative size of oil imports, we also show that oil price shocks are not always costly for oil-importing countries: although higher oil prices increase the import bill, there are partly offsetting increases in external receipts. We provide a small open economy model illustrating the main transmission channels of oil shocks, and show how the recycling of petrodollars may mitigate the impact.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/194.

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Length: 29
Date of creation: 01 Aug 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/194

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Keywords: Oil prices; Emerging markets; External shocks; Price increases; oil exporters; oil shock; oil importers; oil imports; oil-importing countries; exporting countries; oil shocks; importing countries; terms of trade; higher oil prices; oil exporting countries; oil exports; tradable goods; open economy; crude oil; net oil exports; trade effect; oil-importing economies; oil supply; domestic economy; oil importer; oil exporter; international trade; commodity prices; political economy; dynamic effects; trade shocks; world economy; importable goods; economic outcomes; oil import; oil price level; economic integration; oil importing countries; crude oil prices; per capita income; terms of trade shocks; export volumes; capital flows; fuel taxes; aggregate demand; economic perspectives; oil consumption; export earnings;

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References

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  1. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
  2. Lutz Kilian & Alessandro Rebucci & Nikola Spatafora, 2007. "Oil Shocks and External Balances," Working Papers 562, Research Seminar in International Economics, University of Michigan.
  3. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
  4. James D. Hamilton, 2010. "Causes and consequences of the oil shock of 2007–08," CQER Working Paper 2009-02, Federal Reserve Bank of Atlanta.
  5. Mehdi Raissi & Kamiar Mohaddes, 2011. "Oil Prices, External Income, and Growth," IMF Working Papers 11/291, International Monetary Fund.
  6. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
  7. Mohaddes Kamiar & Raissi Mehdi, 2013. "Oil Prices, External Income, and Growth: Lessons from Jordan," Review of Middle East Economics and Finance, De Gruyter, vol. 9(2), pages 99-131, August.
  8. Olivier J. Blanchard & Jordi Galí, 2007. "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?," NBER Chapters, in: International Dimensions of Monetary Policy, pages 373-421 National Bureau of Economic Research, Inc.
  9. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  10. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
  11. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
  12. Jiménez-Rodríguez, Rebeca & Sánchez, Marcelo, 2004. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Working Paper Series 0362, European Central Bank.
  13. 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.
  14. Julio J. Rotemberg, 2007. "Comment on "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?"," NBER Chapters, in: International Dimensions of Monetary Policy, pages 421-428 National Bureau of Economic Research, Inc.
  15. M. Hakan Berument & Nildag Basak Ceylan & Nukhet Dogan, 2010. "The Impact of Oil Price Shocks on the Economic Growth of Selected MENA1 Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 149-176.
  16. 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.
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Citations

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Cited by:
  1. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," CESifo Working Paper Series 3778, CESifo Group Munich.
  2. Martin Stürmer, 2013. "150 Years of Boom and Bust: What Drives Mineral Commodity Prices?," 2013 Papers pst529, Job Market Papers.
  3. Claudio Morana, 2013. "The oil price-macroeconomy relationship since the mid-1980s: A global perspective," Working Papers 223, University of Milano-Bicocca, Department of Economics, revised Feb 2013.
  4. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Growth in Transition: A Meta-Analysis," William Davidson Institute Working Papers Series wp1057, William Davidson Institute at the University of Michigan.
  5. Jean-Pierre Allegret & Valérie Mignon & Audrey Sallenave, 2014. "Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies," EconomiX Working Papers 2014-14, University of Paris West - Nanterre la Défense, EconomiX.
  6. Jan Babecky & Tomas Havranek, 2014. "Structural reforms and growth in transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 13-42, 01.
  7. James D. Hamilton, 2012. "Oil Prices, Exhaustible Resources, and Economic Growth," NBER Working Papers 17759, National Bureau of Economic Research, Inc.
  8. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.
  9. Buetzer, Sascha & Habib, Maurizio Michael & Stracca, Livio, 2012. "Global exchange rate configurations: Do oil shocks matter?," Working Paper Series 1442, European Central Bank.

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