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Supply Shocks and Price Adjustment in the World Oil Market

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  • R. Glenn Hubbard

Abstract

Understanding the impacts of transitory oil supply shocks on world oil prices is crucial to the evaluation of the economic impacts of shocks and the design of policy responses to address those impacts. This paper integrates short-run and long-run approaches to oil price determination, with particular emphasis on the "two-price" structure of the world oil market—with coexisting short-term "spot" prices and long-term "contract" prices. Even transitory shocks are shown to exhibit persistence effects on long-term prices. Some implications for econometric models of the relationship between spot and contract prices are discussed.

Suggested Citation

  • R. Glenn Hubbard, 1986. "Supply Shocks and Price Adjustment in the World Oil Market," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 85-102.
  • Handle: RePEc:oup:qjecon:v:101:y:1986:i:1:p:85-102.
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    File URL: http://hdl.handle.net/10.2307/1884643
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    Cited by:

    1. Christiane Baumeister & Gert Peersman, 2013. "The Role Of Time‐Varying Price Elasticities In Accounting For Volatility Changes In The Crude Oil Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1087-1109, November.
    2. Palle S. Andersen & Henri Bernard, 1991. "Energy shocks and the demand for energy," BIS Working Papers 17, Bank for International Settlements.
    3. Celso Brunetti, Bahattin Buyuksahin, Michel A. Robe, and Kirsten R. Soneson, 2013. "OPEC "Fair Price" Pronouncements and the Market Price of Crude Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    5. Chevillon, Guillaume & Rifflart, Christine, 2009. "Physical market determinants of the price of crude oil and the market premium," Energy Economics, Elsevier, vol. 31(4), pages 537-549, July.
    6. Pinelopi K. Goldberg & Rebecca Hellerstein, 2009. "How rigid are producer prices?," Staff Reports 407, Federal Reserve Bank of New York.
    7. Hubbard, R Glenn & Weiner, Robert J, 1992. "Long-Term Contracting and Multiple-Price Systems," The Journal of Business, University of Chicago Press, vol. 65(2), pages 177-198, April.
    8. R. Glenn Hubbard & Robert J. Weiner, 1985. "Nominal Contracting and Price Flexibility in Product Markets," NBER Working Papers 1738, National Bureau of Economic Research, Inc.
    9. Peersman, Gert & Van Robays, Ine, 2012. "Cross-country differences in the effects of oil shocks," Energy Economics, Elsevier, vol. 34(5), pages 1532-1547.
    10. Ine Van Robays, 2016. "Macroeconomic Uncertainty and Oil Price Volatility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 671-693, October.
    11. Massimiliano Serati & Gianni Amisano, 2008. "Building composite leading indexes in a dynamic factor model framework: a new proposal," LIUC Papers in Economics 212, Cattaneo University (LIUC).
    12. Chesnes, Matthew, 2015. "The impact of outages on prices and investment in the U.S. oil refining industry," Energy Economics, Elsevier, vol. 50(C), pages 324-336.

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