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Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996

Donald W. Jones, Paul N. Leiby and Inja K. Paik

Year: 2004
Volume: Volume 25
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No2-1
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Abstract:
This paper reports on developments in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks since 1996, when the U.S. Department of Energy sponsored a workshop summarizing the state of understanding of the subject. Four major insights stand out. First, theoretical and empirical analyses point to intra- and intersectoral reallocations in response to shocks, generating asymmetric impacts for oil price increases and decreases. Second, the division of responsibility for post-oil-price shock recessions between monetary policy and oil price shocks, has leaned heavily toward oil price shocks. Third, parametric statistical techniques have identified a stable, nonlinear, relationship between oil price shocks and GDP from the late 1940s through the third quarter of 2001. Fourth, the magnitude of effect of an oil price shock on GDP, derived from impulse response functions of oil price shocks in the GDP equation of a VAR, is around -0.05 and -0.06 as an elasticity, spread over two years, where the shock threshold is a price change exceeding a three-year high.



The Oil Price-Macroeconomy Relationship Since the Mid-1980s: A Global Perspective

Claudio Morana

Year: 2013
Volume: Volume 34
Number: Number 3
DOI: 10.5547/01956574.34.3.8
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Abstract:
We investigate the oil price-macroeconomy relationship from a global perspective, by means of a large scale macro-financial-econometric model. In addition to real activity, we consider fiscal and monetary policy responses and labor and financial markets conditions, in order to provide a comprehensive account of the macro-financial effects of oil price shocks. We find that oil market supply side, speculative, preferences, and volatility shocks exercised recessionary effects during the first and second Persian Gulf War and 2008 oil price episodes. As long as oil supply will keep expanding at a slower pace than required by demand conditions, and in so far as the recently passed regulatory provisions aimed at controlling financial speculation in the oil (and other commodities) futures market will prove unsuccessful, a recessionary bias, determined by higher and more uncertain real oil prices, may then be expected to persist also in the near future.



Why the Effects of Oil Price Shocks on China’s Economy are Changing

Shouyang Wang, Xun Zhang, and Lin Zhao

Year: 2020
Volume: Volume 41
Number: Number 6
DOI: 10.5547/01956574.41.6.swan
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Abstract:
Some studies on developed economies have revealed that the impacts of oil price shocks have decreased while conclusions about China remain occluded. We investigate the changing effects of oil price shocks on China�s macroeconomy and discuss the causes. A time-varying parameter vector autoregressive (VAR) model reveals that impacts of oil price shocks on China�s economy have shown a downward trend since 1997. The responses of the real output are much greater and last longer than those of inflation. Then a new Keynesian dynamic stochastic general equilibrium model is developed to synthetically explore the causes. The results indicate that decreasing oil intensity and monopoly power reduce the effects of oil price shocks, while increasing capital intensity in production amplifies them. Other factors-such as changing price stickiness, deregulation of refined oil prices, and shifts in monetary policy targets-have limited effects on the relationship between oil price shocks and China�s macroeconomy.



Buyer Beware: The Asymmetric Impact of the Strategic Petroleum Reserve on Crude Oil Prices

Reid B. Stevens and Jeffery Y. Zhang

Year: 2021
Volume: Volume 42
Number: Number 6
DOI: 10.5547/01956574.42.6.rste
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Abstract:
Have U.S. oil market policy interventions succeeded in lowering the price of crude oil? This paper uses a structural vector autoregression model of the U.S. oil market to estimate the effect of purchases and releases by the Strategic Petroleum Reserve (SPR). Unanticipated releases from the SPR have no measurable impact on oil prices, but unanticipated purchases for the SPR raise oil prices by about 1 percent. These results are robust to identification using external instruments.





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