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The Differential Effects of Oil Demand and Supply Shocks on the Global Economy

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  • Paul Cashin
  • Kamiar Mohaddes
  • Mehdi Raissi
  • Maziar Raissi

Abstract

We employ a set of sign restrictions on the generalized impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, to discriminate between supply-driven and demand-driven oil-price shocks and to study the time profile of their macroeconomic effects for different countries. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures and a short-run increase in real output.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/253.

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Length: 41
Date of creation: 23 Oct 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/253

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Keywords: Oil prices; Demand; External shocks; Economic models; Cross country analysis; Global VAR (GVAR); interconnectedness; global macroeconomic modeling; impulse responses; international business cycle; oil-demand and oil-supply shocks.; oil exporters; exporting countries; oil importers; reer; importing countries; oil-importing countries; commodity exporters; real effective exchange rate; oil exports; petroleum exporting countries; bilateral trade; aggregate demand; export data; commodity prices; energy exporters; trading partners; oil-exporting countries; trade flows; world economy; capital flows; international trade; open capital accounts; price fluctuations; economic cooperation; trade share; domestic production; monetary union; oil-importing economies; global market; oil shock; trade relationships; trade pattern; import demand; transmission of shocks; average trade; oil exporting; open economies; output growth;

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References

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Citations

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Cited by:
  1. Paul Cashin & Kamiar Mohaddes & Mehdi Raissi, 2012. "The Global Impact of the Systemic Economies and MENA Business Cycles," IMF Working Papers 12/255, International Monetary Fund.
  2. Chudik, Alexander & Pesaran, M. Hashem, 2014. "Theory and practice of GVAR modeling," Globalization and Monetary Policy Institute Working Paper 180, Federal Reserve Bank of Dallas.
  3. Jean-Pierre Allegret & Valérie Mignon & Audrey Sallenave, 2014. "Oil price shocks and global imbalances: Lessons from a model with trade and financial interdependencies," Working Papers 2014-01, CEPII research center.
  4. Daniel Zerfu Gurara & Mthuli Ncube, 2013. "Working Paper 183 - Global Economic Spillovers to Africa- A GVAR Approach," Working Paper Series 981, African Development Bank.
  5. Jonas Dovern & Björn van Roye, 2013. "International transmission of financial stress: evidence from a GVAR," Kiel Working Papers 1844, Kiel Institute for the World Economy.

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