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Revisiting the Inflationary Effects of Oil Prices

Shiu-Sheng Chen

Year: 2009
Volume: Volume 30
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-5
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Abstract:
This paper uses a structural vector autoregression model to investigate the inflationary effects of oil prices. Rather than simply infer the oil price changes as oil supply shocks, we identify three different shocks in the crude oil market: the oil supply shock, the global aggregate demand shock, and the oil-market specific demand shock. We then use impulse response functions to compute the conditional oil price pass-through ratios. It is found that the largest oil price pass-through is caused by oil supply shocks. However, evidence from historical decompositions suggests that the oil price movements have been driven by shocks from strong global aggregate demand and oil demand while only minor contributions come from oil supply shocks. Disentangling demand and supply shocks in the crude oil market helps to uncover the fact that a recent decline in unconditional oil price pass-through may come from the low conditional pass-through caused by global demand shocks.



Oil Price Volatility and Bilateral Trade

Shiu-Sheng Chen and Kai-Wei Hsu

Year: 2013
Volume: Volume 34
Number: Number 1
DOI: 10.5547/01956574.34.1.9
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Abstract:
This paper examines whether oil price volatility affects bilateral trade between two countries around the world. Using the gravity econometric model with 1,995 country-pairs covering 117 countries from 1984 to 2009, the empirical results suggest that oil price fluctuations significantly decrease bilateral trade volumes. The negative impact is more prominent the greater the distance between the two trading countries. As geographical distance is one of the measures of transport cost, our results also suggest that a potential channel through which oil price volatility hurts trade volumes is the uncertainty in transport cost.





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