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Forty years of oil price fluctuations: Why the price of oil may still surprise us

Listed author(s):
  • Baumeister, Christiane
  • Kilian, Lutz

It has been forty years since the oil crisis of 1973/74. This crisis has been one of the defining economic events of the 1970s and has shaped how many economists think about oil price shocks. In recent years, a large literature on the economic determinants of oil price fluctuations has emerged. Drawing on this literature, we first provide an overview of the causes of all major oil price fluctuations between 1973 and 2014. We then discuss why oil price fluctuations remain difficult to predict, despite economists' improved understanding of oil markets. Unexpected oil price fluctuations are commonly referred to as oil price shocks. We document that, in practice, consumers, policymakers, financial market participants and economists may have different oil price expectations, and that, what may be surprising to some, need not be equally surprising to others.

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Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 525.

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Date of creation: 2015
Handle: RePEc:zbw:cfswop:525
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  1. Tuomas Komulainen & ) & Johanna Lukkarila, 2003. "What drives financial crises in emerging markets?," Macroeconomics 0304010, EconWPA.
  2. Kilian, Lutz & Lee, Thomas K., 2014. "Quantifying the speculative component in the real price of oil: The role of global oil inventories," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 71-87.
  3. Soren T. Anderson & Ryan Kellogg & James M. Sallee & Richard T. Curtin, 2011. "Forecasting Gasoline Prices Using Consumer Surveys," American Economic Review, American Economic Association, vol. 101(3), pages 110-114, May.
  4. Ron Alquist & Lutz Kilian, 2010. "What do we learn from the price of crude oil futures?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(4), pages 539-573.
  5. Eyal Dvir & Kenneth S. Rogoff, 2009. "Three Epochs of Oil," NBER Working Papers 14927, National Bureau of Economic Research, Inc.
  6. Cairns, Robert D. & Calfucura, Enrique, 2012. "OPEC: Market failure or power failure?," Energy Policy, Elsevier, vol. 50(C), pages 570-580.
  7. Bassam Fattouh, Lutz Kilian, and Lavan Mahadeva, 2013. "The Role of Speculation in Oil Markets: What Have We Learned So Far?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
  8. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  9. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  10. Christiane Baumeister & Gert Peersman, 2013. "The Role Of Time‐Varying Price Elasticities In Accounting For Volatility Changes In The Crude Oil Market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(7), pages 1087-1109, November.
  11. Christiane Baumeister & Lutz Kilian, 2014. "What Central Bankers Need To Know About Forecasting Oil Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 869-889, 08.
  12. Robert S. Pindyck, 2004. "Volatility and commodity price dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 24(11), pages 1029-1047, November.
  13. 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.
  14. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
  15. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters,in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc.
  16. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
  17. Valerie A. Ramey & Daniel J. Vine, 2011. "Oil, Automobiles, and the U.S. Economy: How Much Have Things Really Changed?," NBER Chapters,in: NBER Macroeconomics Annual 2010, Volume 25, pages 333-367 National Bureau of Economic Research, Inc.
  18. Lutz Kilian & Bruce Hicks, 2013. "Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(5), pages 385-394, 08.
  19. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
  20. Francesco Lippi & Andrea Nobili, 2012. "Oil And The Macroeconomy: A Quantitative Structural Analysis," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1059-1083, October.
  21. Lutz Kilian & Daniel P. Murphy, 2012. "Why Agnostic Sign Restrictions Are Not Enough: Understanding The Dynamics Of Oil Market Var Models," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1166-1188, October.
  22. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, 04.
  23. 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.
  24. Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(03), pages 599-632, June.
  25. Martin Bodenstein & Luca Guerrieri & Lutz Kilian, 2012. "Monetary Policy Responses to Oil Price Fluctuations," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(4), pages 470-504, December.
  26. Hamilton, James D. & Wu, Jing Cynthia, 2014. "Risk premia in crude oil futures prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 9-37.
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