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Asset Value, Interest Rates and Oil Price Volatility

  • Vipin Arora

    ()

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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File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp536.pdf
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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2011-536.

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Length: 25 Pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:acb:cbeeco:2011-536
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  1. 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.
  2. Arora, Vipin & Tyers, Rod, 2012. "Asset arbitrage and the price of oil," Economic Modelling, Elsevier, vol. 29(2), pages 142-150.
  3. Anton Nakov & Andrea Pescatori, 2007. "Inflation-output gap trade-off with a dominant oil supplier," Working Paper 0710, Federal Reserve Bank of Cleveland.
  4. Q. Farooq Akram, 2008. "Commodity prices, interest rates and the dollar," Working Paper 2008/12, Norges Bank.
  5. Barsky, Robert & Kilian, Lutz, 2004. "Oil and the Macroeconomy Since the 1970s," CEPR Discussion Papers 4496, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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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