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Macroeconomic effects of precautionary demand for oil


  • Alessio Anzuini

    () (Bank of Italy)

  • Patrizio Pagano

    () (Bank of Italy)

  • Massimiliano Pisani

    () (Bank of Italy)


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.

Suggested Citation

  • Alessio Anzuini & Patrizio Pagano & Massimiliano Pisani, 2013. "Macroeconomic effects of precautionary demand for oil," Temi di discussione (Economic working papers) 918, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_918_13

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    4. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    5. Faust, Jon & Swanson, Eric T. & Wright, Jonathan H., 2004. "Identifying VARS based on high frequency futures data," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1107-1131, September.
    6. Renee Fry & Callum Jones & Christopher Kent, 2010. "Inflation in an Era of Relative Pirce Shocks," CAMA Working Papers 2010-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    7. James D. Hamilton, 1985. "Historical Causes of Postwar Oil Shocks and Recessions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 97-116.
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    10. Michele Cavallo & Tao Wu, 2006. "Measuring oil-price shocks using market-based information," Working Paper Series 2006-28, Federal Reserve Bank of San Francisco.
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    Cited by:

    1. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses," Koç University-TUSIAD Economic Research Forum Working Papers 1504, Koc University-TUSIAD Economic Research Forum.
    2. 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).
    3. repec:eee:jbfina:v:84:y:2017:i:c:p:53-67 is not listed on IDEAS

    More about this item


    vector autoregression; oil shock; futures; news;

    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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