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On the Sources and Consequences of Oil Price Shocks : The Role of Storage

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  • Deren Unalmis
  • Ibrahim Unalmis
  • Derya 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 ?nd that business-cycle driven oil demand shocks are the most important drivers of U.S. oil price ?uctuations 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 ?uctuations. 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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File URL: http://www.tcmb.gov.tr/research/teblig/abstract/wp1230_eng.php
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Bibliographic Info

Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1230.

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Date of creation: 2012
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Handle: RePEc:tcb:wpaper:1230

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Related research

Keywords: oil storage; oil price fluctuations; oil demand and oil supply shocks; speculative oil demand; sticky-price DSGE models;

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Cited by:
  1. Yusuf Soner Baskaya & Timur Hulagu & Hande Kucuk, 2013. "Oil Price Uncertainty in a Small Open Economy," Working Papers 1309, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. 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.

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