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Macroeconomic Effects of Precautionary Demand for Oil

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  • Alessio Anzuini
  • Patrizio Pagano
  • Massimiliano Pisani

Abstract

We evaluate the macroeconomic effects of shocks specific to the oil market, which mainly reflect fluctuations in precautionary demand for oil driven by uncertainty about future supplies. A two-stage identification procedure is used. First, daily changes in the futures-spot spread proxy for precautionary demand shocks and the path of oil prices is estimated. This information is then exploited to restrict the oil price response in a VAR. Impulse responses suggest that such shocks reduce output and raise prices. Historical decomposition shows that they contributed significantly to the U.S. recessions in the 1990s and in the early 2000s, but not to the most recent slump.
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  • Alessio Anzuini & Patrizio Pagano & Massimiliano Pisani, 2015. "Macroeconomic Effects of Precautionary Demand for Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(6), pages 968-986, September.
  • Handle: RePEc:wly:japmet:v:30:y:2015:i:6:p:968-986
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    Cited by:

    1. Kang, Boda & Nikitopoulos, Christina Sklibosios & Prokopczuk, Marcel, 2020. "Economic determinants of oil futures volatility: A term structure perspective," Energy Economics, Elsevier, vol. 88(C).
    2. Känzig, Diego Raoul, 2020. "The macroeconomic effects of oil supply news: Evidence from OPEC announcements," MPRA Paper 106249, University Library of Munich, Germany.
    3. Alain Kabundi & Franziska Ohnsorge, 2020. "Implications of cheap oil for emerging markets," CAMA Working Papers 2020-83, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Raghavan, Mala, 2020. "An analysis of the global oil market using SVARMA models," Energy Economics, Elsevier, vol. 86(C).
    5. Sun, Hang & Bos, Jaap W.B. & Li, Zhuo, 2017. "In the Nick of Time: A Heteroskedastic SVAR Model and Its Application to the Crude Oil Futures Market," Research Memorandum 019, Maastricht University, Graduate School of Business and Economics (GSBE).
    6. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The great plunge in oil prices: causes, consequences, and policy responses," CAMA Working Papers 2015-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    7. James D. Hamilton, 2021. "Measuring global economic activity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(3), pages 293-303, April.
    8. James D. Hamilton, 2019. "Measuring Global Economic Activity," NBER Working Papers 25778, National Bureau of Economic Research, Inc.
    9. Chen, Jinyu & Zhu, Xuehong & Li, Hailing, 2020. "The pass-through effects of oil price shocks on China's inflation: A time-varying analysis," Energy Economics, Elsevier, vol. 86(C).
    10. Uliha, Gábor, 2016. "Az olajár gyengülő makrogazdasági hatásai. Két versengő elmélet szintézise [Weakening macroeconomic effects of the oil price. A synthesis of two competing theories]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 787-818.
    11. Venditti, Fabrizio & Veronese, Giovanni, 2020. "Global financial markets and oil price shocks in real time," Working Paper Series 2472, European Central Bank.
    12. Gong, Xu & Lin, Boqiang, 2018. "Time-varying effects of oil supply and demand shocks on China's macro-economy," Energy, Elsevier, vol. 149(C), pages 424-437.
    13. Nikitopoulos, Christina Sklibosios & Squires, Matthew & Thorp, Susan & Yeung, Danny, 2017. "Determinants of the crude oil futures curve: Inventory, consumption and volatility," Journal of Banking & Finance, Elsevier, vol. 84(C), pages 53-67.
    14. Grigoli, Francesco & Herman, Alexander & Swiston, Andrew, 2019. "A crude shock: Explaining the short-run impact of the 2014–16 oil price decline across exporters," Energy Economics, Elsevier, vol. 78(C), pages 481-493.

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    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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