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Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market

  • Lutz Kilian

Shocks to the real price of oil may reflect oil supply shocks, shocks to the global demand for all industrial commodities, or demand shocks that are specific to the crude oil market. Each shock has different effects on the real price of oil and on US macroeconomic aggregates. Changes in the composition of shocks help explain why regressions of macroeconomic aggregates on oil prices tend to be unstable. Evidence that the recent surge in oil prices was driven primarily by global demand shocks helps explain why this shock so far has failed to cause a major recession in the United States. (JEL E31, E32, Q41, Q43)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.3.1053
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 3 (June)
Pages: 1053-69

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:3:p:1053-69
Note: DOI: 10.1257/aer.99.3.1053
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  1. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  2. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
  3. Den Haan, Wouter & Sumner, Steven, 2001. "The Comovements between Real Activity and Prices in the G7," CEPR Discussion Papers 2801, C.E.P.R. Discussion Papers.
  4. den Haan, Wouter J., 2000. "The comovement between output and prices," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 3-30, August.
  5. Kilian, Lutz, 2005. "Exogenous Oil Supply Shocks: How Big Are They and How Much do they Matter for the US Economy?," CEPR Discussion Papers 5131, C.E.P.R. Discussion Papers.
  6. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
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