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On the Sources and Consequences of Oil Price Shocks

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Author Info

  • Deren Unalmis
  • Ibrahim Unalmis
  • D. Filiz Unsal

Abstract

Building on recent work on the role of speculation and inventories in oil markets, we embed a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. We find that business-cycle driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982-2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. Our results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/270.

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Length: 41
Date of creation: 08 Nov 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/270

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Related research

Keywords: Oil prices; United States; External shocks; Demand; Supply; Price increases; Monetary policy; Fiscal policy; Economic models; inflation; nominal interest rate; elasticity of substitution; market equilibrium; real interest rate; open economy; output growth; exogenous shock; price inflation; rational expectations; oil shock; monetary economics; investment goods; closed economy; gdp deflator; terms of trade; aggregate consumption; closed economies; commodity prices; real interest rates; fixed investment; return on capital; global market; relative price; equilibrium model;

References

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  1. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, vol. 94(1), pages 190-217, March.
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  4. 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.
  5. Deren Unalmis & Ibrahim Unalmis & D. Filiz Unsal, 2009. "On the Sources of Oil Price Fluctuations," IMF Working Papers 09/285, International Monetary Fund.
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Citations

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Cited by:
  1. Rizvanoghlu, Islam, 2011. "Oil Price Shocks and Macroeconomy: The Role for Precautionary Demand and Storage," MPRA Paper 42351, University Library of Munich, Germany, revised 01 Jun 2012.
  2. Yusuf Soner Başkaya & Timur H�lag� & Hande K���k, 2013. "Oil Price Uncertainty in a Small Open Economy," IMF Economic Review, Palgrave Macmillan, vol. 61(1), pages 168-198, April.

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