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Measuring oil-price shocks using market-based information

Author

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  • Tao Wu

    (Federal Reserve Bank of Dallas)

  • Michele Cavallo

    (Federal Reserve Bank of San Francisco)

Abstract

We develop two measures of exogenous oil-price shocks for the period 1984 to 2006 based on market commentaries on daily oil-price fluctuations. Our measures are based on exogenous events that trigger substantial fluctuations in spot oil prices and are constructed to be free of endogenous and anticipatory movements. We find that the dynamic responses of output and prices implied by these measures are “well-behaved,” and that the response of output is larger than the one implied by a conventional measure of oil-price shocks proposed in the literature. We then present a dynamic general-equilibrium model and ask whether it can account for the response of key macroeconomic variables to our oil-price shocks.

Suggested Citation

  • Tao Wu & Michele Cavallo, 2007. "Measuring oil-price shocks using market-based information," 2007 Meeting Papers 953, Society for Economic Dynamics.
    • Handle: RePEc:red:sed007:953
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    References listed on IDEAS

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    Cited by:

    1. Munechika Katayama, 2013. "Declining Effects of Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 977-1016, September.

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