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Crude Oil Prices and Liquidity, the BRIC and G3 countries

Unanticipated increases in the BRIC countries’ liquidity lead to significant and persistent increases in real oil prices, global oil production and global real aggregate demand. Unanticipated shocks to the liquidity of developed countries over 1997:01-2011:12 do not. The relative contribution to real oil price of liquidity in BRIC countries to liquidity in developed countries is much greater since 2005 than before 2005. China and India drive the results for the effect of BRIC countries’ liquidity on real oil price and global oil production. China and India and Brazil and Russia reinforce one another on the effect of liquidity on global real aggregate demand. Due to the difference between countries as commodity importers/exporters, the liquidity of Brazil and Russia increases significantly with a rise in real oil price and that of China and India decreases significantly with a rise in real oil price. It is shown that the strong rebound in oil price during 2009 is mostly due to strong effects of shocks to liquidity in the BRIC countries. The analysis helps in assessing the importance of the BRIC economies in the upsurge of the real price of crude oil.

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File URL: http://eprints.utas.edu.au/15727/1/2012-11__DP_Ratti_Vespignani.pdf
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Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 15727.

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Length: 29 pages
Date of creation: 17 Dec 2012
Date of revision: 17 Dec 2012
Publication status: Published by the University of Tasmania. Discussion paper 2012-11
Handle: RePEc:tas:wpaper:15727
Contact details of provider: Postal: Private Bag 85, Hobart, Tasmania 7001
Phone: +61 3 6226 7672
Fax: +61 3 6226 7587
Web page: http://www.utas.edu.au/economics-finance/

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