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Asset Value, Interest Rates and Oil Price Volatility


Simulations from a standard two-region model where producers respond to changes in interest rates are better able to match observed data than an identical model without supply-side responses. This indicates that incorporating the supply-side behaviour of oil producers is quantitatively important when endogenously modeling oil prices. These results have two implications. First, adding supply-side responses can change the oil price/output relationship, which is a continuing topic of research interest. Second, if production is unable to adjust to interest rate changes, an important explanatory factor of oil price volatility may be missing.

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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 87 (2011)
Issue (Month): s1 (09)
Pages: 45-55

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Handle: RePEc:bla:ecorec:v:87:y:2011:i:s1:p:45-55
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  1. repec:acb:camaaa:2011-21 is not listed on IDEAS
  2. Q. Farooq Akram, 2008. "Commodity prices, interest rates and the dollar," Working Paper 2008/12, Norges Bank.
  3. Vipin Arora, 2011. "Arbitrage and the Price of Oil," ANU Working Papers in Economics and Econometrics 2011-535, Australian National University, College of Business and Economics, School of Economics.
  4. Attanasio, Orazio P, et al, 1999. "Humps and Bumps in Lifetime Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 22-35, January.
  5. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Banco de Espa�a Working Papers 0723, Banco de Espa�a.
  6. Barsky, Robert & Kilian, Lutz, 2004. "Oil and the Macroeconomy Since the 1970s," CEPR Discussion Papers 4496, C.E.P.R. Discussion Papers.
  7. Kemfert, Claudia & Welsch, Heinz, 2000. "Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany," Journal of Policy Modeling, Elsevier, vol. 22(6), pages 641-660, November.
  8. Naohisa Hirakata & Nao Sudo, 2009. "Accounting for Oil Price Variation and Weakening Impact of the Oil Crisis," IMES Discussion Paper Series 09-E-01, Institute for Monetary and Economic Studies, Bank of Japan.
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