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News, Noise and Oil Price Swings

Author

Listed:
  • Gambetti, Luca

    (Universitat Autonoma de Barcelona)

  • Moretti, Laura

    (Central Bank of Ireland)

Abstract

We interpret oil price fluctuations as the result of agents reaction to news about oil market fundamentals. Agents form expectations about future developments in oil production with limited information, and they only observe a noisy signal about its possible changes. We find that a large part of oil price swings is attributable to shocks that do not have any effect on oil production or global demand indexes. The finding is obtained using a VAR with dynamic rotations. We interpret this shock, through the lenses of a simple imperfect information rational expectations framework, as a noise shock in the oil market.

Suggested Citation

  • Gambetti, Luca & Moretti, Laura, 2017. "News, Noise and Oil Price Swings," Research Technical Papers 12/RT/17, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:12/rt/17
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/12rt17-news-noise-and-oil-price-swings-(gambetti-and-moretti).pdf?sfvrsn=5
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    References listed on IDEAS

    as
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    Cited by:

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    3. Degasperi, Riccardo, 2023. "Identification of Expectational Shocks in the Oil Market using OPEC Announcements," The Warwick Economics Research Paper Series (TWERPS) 1464, University of Warwick, Department of Economics.
    4. Czudaj, Robert L., 2022. "Heterogeneity of beliefs and information rigidity in the crude oil market: Evidence from survey data," European Economic Review, Elsevier, vol. 143(C).

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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