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Oil price dynamics, macro-finance interactions and the role of financial speculation

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  • Claudio Morana

Abstract

What is the role of financial speculation in determining the real oil price? We find that while macroeconomic shocks have been the major upward driver of the real oil price since the mid 1980s, financial shocks have also sizably contributed since early 2000s, and at a much larger extent since mid 2000s. Despite financial shocks contributed with 44% out of the 65% real oil price increase over the period 2004-2010, the third oil price shock was a macro-financial episode: macroeconomic shocks actually largely accounted for the 2007-2008 oil price swing. While we then find support to the demand side view of real oil price determination, we also find a much larger role for financial shocks than previously noted in the literature.

Suggested Citation

  • Claudio Morana, 2013. "Oil price dynamics, macro-finance interactions and the role of financial speculation," Working Papers 225, University of Milano-Bicocca, Department of Economics, revised Nov 2013.
    • Handle: RePEc:mib:wpaper:225
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    Keywords

    Oil price; financial speculation; macro-finance interface; international business cycle; factor vector autoregressive models.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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