Measuring Oil-Price Shocks Using Market-Based Information

January 1, 2012

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Format: Chicago

Tao Wu, and Michele Cavallo. Measuring Oil-Price Shocks Using Market-Based Information, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We study the effects of oil-price shocks on the U.S. economy combining narrative and quantitative approaches. After examining daily oil-related events since 1984, we classify them into various event types. We then develop measures of exogenous shocks that avoid endogeneity and predictability concerns. Estimation results indicate that oil-price shocks have had substantial and statistically significant effects during the last 25 years. In contrast, traditional VAR approaches imply much weaker and insignificant effects for the same period. This discrepancy stems from the inability of VARs to separate exogenous oil-supply shocks from endogenous oil-price fluctuations driven by changes in oil demand.

Subject: Commodities, Consumer price indexes, Inflation, Oil, Oil prices, Oil production, Prices, Production

Keywords: Consumer price indexes, Exogenous oil-price shock, Global, Inflation, Market-Based Information, Middle East, Oil, Oil price movement, Oil price shock, Oil prices, Oil production, Oil Shocks, Oil-price channel, Oil-price forecasting equation, Oil-price forecasting model, Oil-price increase, Oil-price indicator, Oil-price movement, Oil-price shock, Price decline, Price level, Shock measure, VAR Identification, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/019
Stock No:

WPIEA2012019
ISBN:

9781463931810
ISSN:

1018-5941

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