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Oil Shocks in a Global Perspective; Are they Really That Bad?

  • Tobias N. Rasmussen
  • Agustin Roitman

Using a comprehensive global dataset, we outline stylized facts characterizing relationships between crude oil prices and macroeconomic developments across the world. Approaching the data from several angles, we find that the impact of higher oil prices on oil-importing economies is generally small: a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less. While cross-country differences in impact are found to depend mainly on the relative size of oil imports, we also show that oil price shocks are not always costly for oil-importing countries: although higher oil prices increase the import bill, there are partly offsetting increases in external receipts. We provide a small open economy model illustrating the main transmission channels of oil shocks, and show how the recycling of petrodollars may mitigate the impact.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/194.

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Length: 29
Date of creation: 01 Aug 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/194
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  1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  2. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
  3. Mohaddes, K. & Raissi, M., 2011. "Oil Prices, External Income, and Growth: Lessons from Jordan," Cambridge Working Papers in Economics 1164, Faculty of Economics, University of Cambridge.
  4. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
  5. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
  6. Bernanke, Ben S. & Gertler, Mark & Waston, Mark, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Working Papers 97-25, C.V. Starr Center for Applied Economics, New York University.
  7. Olivier J. Blanchard & Jordi Gali, 2007. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s So Different from the 1970s?," NBER Working Papers 13368, National Bureau of Economic Research, Inc.
  8. Olivier J. Blanchard & Jordi Galí, 2007. "The macroeconomic effects of oil price shocks: Why are the 2000s so different from the 1970s?," Economics Working Papers 1045, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2008.
  9. International Monetary Fund, 2007. "Oil Shocks and External Balances," IMF Working Papers 07/110, International Monetary Fund.
  10. Julio J. Rotemberg, 2007. "Comment on "The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s so different from the 1970s?"," NBER Chapters, in: International Dimensions of Monetary Policy, pages 421-428 National Bureau of Economic Research, Inc.
  11. James D. Hamilton, 2010. "Causes and consequences of the oil shock of 2007–08," CQER Working Paper 2009-02, Federal Reserve Bank of Atlanta.
  12. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
  13. 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.
  14. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  15. M. Hakan Berument & Nildag Basak Ceylan & Nukhet Dogan, 2010. "The Impact of Oil Price Shocks on the Economic Growth of Selected MENA1 Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 149-176.
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