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Measuring oil-price shocks using market-based information

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Abstract

We develop two measures of exogenous oil-price shocks for the period 1984 to 2006 based on market commentaries on daily oil-price fluctuations. Our measures are based on exogenous events that trigger substantial fluctuations in spot oil prices and are constructed to be free of endogenous and anticipatory movements. We find that the dynamic responses of output and prices implied by these measures are \"well behaved.\" We also find that the response of output is larger than the one implied by a conventional measure of oil-price shocks proposed in the literature.

Suggested Citation

  • Michele Cavallo & Tao Wu, 2006. "Measuring oil-price shocks using market-based information," Working Paper Series 2006-28, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:2006-28
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    1. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
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    1. Raphael Raduzzi & Antonio Ribba, 2020. "The macroeconomics outcome of oil shocks in the small Eurozone economies," The World Economy, Wiley Blackwell, vol. 43(1), pages 191-211, January.
    2. Francesca Rondina, 2010. "Policy evaluation and uncertainty about the effects of oil prices on economic activity," UFAE and IAE Working Papers 855.10, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    3. Jinjarak, Yothin, 2014. "Equity prices and financial globalization," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 49-57.
    4. Luís Francisco Aguiar-Conraria & Maria Joana Soares, 2007. "Using cross-wavelets to decompose the time-frequency relation between oil and the macroeconomy," NIPE Working Papers 16/2007, NIPE - Universidade do Minho.
    5. Robert C Ready, 2018. "Oil Prices and the Stock Market [The vix, the variance premium and stock market volatility]," Review of Finance, European Finance Association, vol. 22(1), pages 155-176.
    6. Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2011. "Oil shocks and external adjustment," Journal of International Economics, Elsevier, vol. 83(2), pages 168-184, March.
    7. Chen, Natalie & Graham, Liam & Oswald, Andrew J., "undated". "Oil Prices, Profits, and Recessions: An Inquiry Using Terrorism as an Instrumental Variable," Economic Research Papers 269759, University of Warwick - Department of Economics.

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