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Granger Predictability of Oil prices after the Great Recession

Author

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  • Szilard Benk

    () (International Monetary Fund)

  • Max Gillman

    () (Department of Economics, University of Missouri-St. Louis)

Abstract

Real oil prices surged from 2009 through 2014, comparable to the 1970s oil shock period. Standard explanations based on monopoly markup fall short since ination remained low after 2009. This paper contributes strong evidence of Granger (1969) predictability of nominal factors to oil prices, using one adjustment to monetary aggregates. This adjustment is the subtraction from the monetary aggregates of the 2008-2009 Federal Reserve borrowing of reserves from other Central Banks (Swaps), made after US reserves turned negative. This adjustment is key in that Granger predictability from standard monetary aggregates is found only with the Swaps subtracted.

Suggested Citation

  • Szilard Benk & Max Gillman, 2019. "Granger Predictability of Oil prices after the Great Recession," Working Papers 1016, University of Missouri-St. Louis, Department of Economics.
  • Handle: RePEc:msl:workng:1016
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    File URL: http://www.umsl.edu/econ/Research/WorkingPapers/UMSL_ECON_WP_1016.pdf
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    References listed on IDEAS

    as
    1. James D. Hamilton, 2009. "Causes and Consequences of the Oil Shock of 2007-08," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 215-283.
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    4. Michael D Bordo & Owen F Humpage & Anna J Schwartz, 2015. "The Evolution of the Federal Reserve Swap Lines since 1962," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(2), pages 353-372, September.
    5. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
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    7. Gillman, Max & Nakov, Anton, 2009. "Monetary effects on nominal oil prices," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 239-254, December.
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    12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    Keywords

    Oil Price Shocks; Granger Predictability; Monetary Base; M1 Divisia; Swaps; Ination.;

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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