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Oil price dynamics, macro-finance interactions and the role of financial speculation

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  • Claudio Morana

Abstract

What is the role of financial speculation in determining the real oil price? We find that while macroeconomic shocks have been the major upward driver of the real oil price since the mid 1980s, financial shocks have also sizably contributed since early 2000s, and at a much larger extent since mid 2000s. Despite financial shocks contributed with 44% out of the 65% real oil price increase over the period 2004-2010, the third oil price shock was a macro-financial episode: macroeconomic shocks actually largely accounted for the 2007-2008 oil price swing. While we then find support to the demand side view of real oil price determination, we also find a much larger role for financial shocks than previously noted in the literature.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper225.pdf
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 225.

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Length: 47
Date of creation: Nov 2013
Date of revision: Nov 2013
Handle: RePEc:mib:wpaper:225

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Keywords: Oil price; financial speculation; macro-finance interface; international business cycle; factor vector autoregressive models.;

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Cited by:
  1. Claudio Morana, 2014. "Factor Vector Autoregressive Estimation of Heteroskedastic Persistent and Non Persistent Processes Subject to Structural Breaks," Working Papers 273, University of Milano-Bicocca, Department of Economics, revised May 2014.
  2. Chen, Wang & Hamori, Shigeyuki & Kinkyo, Takuji, 2014. "Macroeconomic impacts of oil prices and underlying financial shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 1-12.

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