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Oil shocks and external balances

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  • Kilian, Lutz
  • Rebucci, Alessandro
  • Spatafora, Nikola

Abstract

We provide estimates of the effects of demand and supply shocks in the global crude oil market on several measures of oil exporters' and oil importers' external balances, including the oil trade balance, the non-oil trade balance, the current account, capital gains, and changes in net foreign assets (NFA). First, we show that the effect of oil demand and supply shocks on the merchandise trade balance and the current account, which depending on the source of the shock can be large, depends critically on the response of the non-oil trade balance. Our results provide evidence of an intermediate degree of international financial integration. Second, we document the presence of large and systematic valuation effects in response to these shocks. Valuation effects overall tend to cushion the effect of oil demand and supply shocks on the NFA positions of oil exporters and oil importers. Third, we quantify the overall importance of global business cycle demand shocks as well as oil-market specific demand and supply shocks for external balances.

Suggested Citation

  • Kilian, Lutz & Rebucci, Alessandro & Spatafora, Nikola, 2009. "Oil shocks and external balances," Journal of International Economics, Elsevier, vol. 77(2), pages 181-194, April.
  • Handle: RePEc:eee:inecon:v:77:y:2009:i:2:p:181-194
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    More about this item

    Keywords

    Oil prices External adjustment Oil demand Oil supply International financial integration Valuation effects;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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