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Author: Romita Mukherjee
Publisher:
ISBN:
Category :
Languages : en
Pages : 464
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Book Description
A large volume of research has acknowledged the role of oil price shocks to generate a significant stagflationary impact on U.S. and other oil importing nations. Recent research however shows a paradigm shift in this oil price-macroeconomy relationship since the mid 1980s, during which the U.S. economy has been relatively resilient to oil shocks. Both output contraction and inflationary expectations have been milder in the post mid 1980s than before. But the 2007-08 oil shock episode has re-emphasized the immense impact of the ebbs and flows of oil prices on the U.S. economys ups and downs. Global oil price peaked at $148 a barrel in June 2008. With the mortgage crisis and credit crunch, oil was another blow too many. The U.S. economy swamped into one of the greatest recessions of all times. According to Hamilton (2009), the 2007-08 oil shock had a significant contribution to the recent recession. While a lot of work have been done on the effects of oil price shocks on the U.S. economy, relatively little work has investigated what triggers oil price increase. My research illustrates why it is important to study the cause of an oil price rise. First, the effects of oil price rise on the macro variables depend heavily on what causes the shock. Secondly, whereas the oil price hikes of the 1970s and early 1980s can mostly be attributed to exogenous events in OPEC (Arab Oil Embargo, Iran-Iraq War, Iranian Revolution), a significant source of oil price spikes in the post mid 1980 era have been an increase in global oil demand confronting stagnating oil production. From a policy perspective, of course, policies aimed at dealing with higher oil prices must take careful account of what causes oil prices to rise. Empirical research that demonstrates the resilience of U.S. economy to oil price shocks builds on the implicit assumption that as oil price varies, everything else in the global economy is held constant. Thus all variations in oil prices are taken as alike and exogenous. This overlooks the possibility that oil price rise sparked off by diverse events can potentially lead to different repercussions. This thesis is an attempt to develop framework to study the endogenous increase in oil price. The oil price increase arises from increase in U.S. growth rate, increase in foreign growth rate and a purely exogenous oil supply shock by OPEC. The most important result is that the source of oil price rise has changed after the mid 1980s - whereas before the mid 1980s, bulk of the variation in oil price was due to supply shocks by OPEC, post mid 1980s, most of the variation in oil price is explained by increase in U.S. and foreign growth. Furthermore, if the origin of the oil price rise is the same, then the responses of most U.S. macroeconomic variables display remarkable similarity in the pre and post mid 1980s. This result gives us a new way to look at the resilience of the U.S. economic activity to oil price rise since the mid 1980s. The resilience can be explained to a significant extent by the fact that the type of shocks resulting in oil price rise has changed.
Author: Romita Mukherjee
Publisher:
ISBN:
Category :
Languages : en
Pages : 464
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Book Description
A large volume of research has acknowledged the role of oil price shocks to generate a significant stagflationary impact on U.S. and other oil importing nations. Recent research however shows a paradigm shift in this oil price-macroeconomy relationship since the mid 1980s, during which the U.S. economy has been relatively resilient to oil shocks. Both output contraction and inflationary expectations have been milder in the post mid 1980s than before. But the 2007-08 oil shock episode has re-emphasized the immense impact of the ebbs and flows of oil prices on the U.S. economys ups and downs. Global oil price peaked at $148 a barrel in June 2008. With the mortgage crisis and credit crunch, oil was another blow too many. The U.S. economy swamped into one of the greatest recessions of all times. According to Hamilton (2009), the 2007-08 oil shock had a significant contribution to the recent recession. While a lot of work have been done on the effects of oil price shocks on the U.S. economy, relatively little work has investigated what triggers oil price increase. My research illustrates why it is important to study the cause of an oil price rise. First, the effects of oil price rise on the macro variables depend heavily on what causes the shock. Secondly, whereas the oil price hikes of the 1970s and early 1980s can mostly be attributed to exogenous events in OPEC (Arab Oil Embargo, Iran-Iraq War, Iranian Revolution), a significant source of oil price spikes in the post mid 1980 era have been an increase in global oil demand confronting stagnating oil production. From a policy perspective, of course, policies aimed at dealing with higher oil prices must take careful account of what causes oil prices to rise. Empirical research that demonstrates the resilience of U.S. economy to oil price shocks builds on the implicit assumption that as oil price varies, everything else in the global economy is held constant. Thus all variations in oil prices are taken as alike and exogenous. This overlooks the possibility that oil price rise sparked off by diverse events can potentially lead to different repercussions. This thesis is an attempt to develop framework to study the endogenous increase in oil price. The oil price increase arises from increase in U.S. growth rate, increase in foreign growth rate and a purely exogenous oil supply shock by OPEC. The most important result is that the source of oil price rise has changed after the mid 1980s - whereas before the mid 1980s, bulk of the variation in oil price was due to supply shocks by OPEC, post mid 1980s, most of the variation in oil price is explained by increase in U.S. and foreign growth. Furthermore, if the origin of the oil price rise is the same, then the responses of most U.S. macroeconomic variables display remarkable similarity in the pre and post mid 1980s. This result gives us a new way to look at the resilience of the U.S. economic activity to oil price rise since the mid 1980s. The resilience can be explained to a significant extent by the fact that the type of shocks resulting in oil price rise has changed.
Author: Mark Alan Melichar
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In the first chapter I study the effects of oil price shocks on economic activity at the U.S. state-level, an innovative feature of this dissertation. States which rely more heavily on manufacturing or tourism are more adversely affected by adverse oil price shocks, while states which are major energy producers either benefit or experience insignificant economic changes from historically large oil price increases. Additionally, oil price increases from 1986 to 2011 have not impacted state-level economies to the same degree as increases from 1976 to 1985. This discrepancy can be attributed to a fundamental change in the structure of the U.S. economy, for example, a declining manufacturing sector or an increase in the efficiency with which energy is used in the production process. In the second chapter I explore the effects of alternative measures of energy price shocks on economic activity and examine the relative performance of these alternative measures in forecasting macroeconomic activity. The alternative energy prices I consider are: gasoline, diesel, natural gas, heating oil and electricity. I find that alternative measures of energy price shocks produce different patterns of impulse responses than oil price shocks. The overwhelming evidence indicates that alternative energy price models, excluding a model containing gasoline prices, outperforms the baseline model containing oil prices for many states, particularly at short-to-mid forecast horizons. In the third chapter, which is coauthored with Lance Bachmeier, we determine whether accounting for oil price endogeneity is important when predicting state-level economic activity. We find that accounting for endogeneity matters for in-sample fit for most states. Specifically, in-sample fit would be improved by using a larger model which contains both regular oil price and endogenous oil price movements. However, we conclude that accounting for endogeneity is not important for out-of-sample forecast accuracy, and a simple model containing only the change in the price of oil produces equally accurate forecasts. Accounting for endogeneity is particularly important in an environment in which rising oil prices were caused by a growing global economy, such as in the years 2004-2007.
Author: Naafey Sardar
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This dissertation consists of three essays. The first essay estimates the difference in the response of non-gasoline consumption spending to gasoline expenditure shocks across recessions and expansions. Using a nonlinear structural VAR (SVAR) model estimated on quarterly U.S. data for the period 1973-2018, we find that shocks to gasoline expenditures are followed by a much larger reduction in consumption if the shock occurs during a recession than if it occurs in an expansion. We also find a big difference in the response of personal savings to a gasoline expenditure shock depending on whether the economy is in a recession or expansion. This points to precautionary saving behavior as a source of the asymmetry in the response of consumption. We conclude that consumption forecasts should account for this asymmetry. The second essay asks whether El Nino-Southern Oscillation (ENSO) has asymmetric impacts on U.S. food and agricultural stock prices. Using weekly data from 1990 through 2019, we find support for the hypothesis that food and agricultural stock prices respond asymmetrically to ENSO shocks. In particular, we provide evidence that El Nino shocks typically decrease or have no effect on U.S. food and agricultural stock prices, whereas La Nina shocks generally increase prices. Our results are robust to a variety of robustness checks. The third essay estimates the effect of the 1999-2007 oil price spike on U.S. manufacturing employment. Using local labor market data, we estimate the change in U.S. manufacturing employment that can be explained by oil price movements that can plausibly be considered exogenous with respect to the U.S. economy. Our estimates suggest that the oil price spike may have been responsible for the movement of more than two million workers out of the manufacturing sector. When controlling for the effect of the oil price spike on manufacturing employment, the effect of import competition from China found by Autor, Dorn, and Hansen (2013) falls by more than 20%, with the estimated effect on less-educated workers declining by 26%.
Author: Tao Wu
Publisher: DIANE Publishing
ISBN: 1437935583
Category : Technology & Engineering
Languages : en
Pages : 41
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Book Description
The authors 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, they classify them into various event types. They 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 vector auto-regression (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. Illustrations.
Author: Mr.Paul Cashin
Publisher: International Monetary Fund
ISBN: 1475597150
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
We employ a set of sign restrictions on the generalized impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, to discriminate between supply-driven and demand-driven oil-price shocks and to study the time profile of their macroeconomic effects for different countries. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures and a short-run increase in real output.
Author: Mr. Kangni R Kpodar
Publisher: International Monetary Fund
ISBN: 1616356154
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.
Author: Junchuan Jesse Zeng
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 104
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Book Description
This dissertation studies two major topics related to the crude oil price and the economy. The first topic studied is about the relationship between speculation and the crude oil price and the related implications on the macroeconomic growth and inflation. The second topic is about the relationship between the oil price volatility and the US stock market. It includes two subtopics: i) the volatility spillovers between the crude oil market and the US stock market and ii) the relationship between oil price volatility and real stock returns on the US market. This dissertation has four chapters, with each of the two major topics studied relatively independently in their respective chapters. In the first chapter, we introduce the background and motivation for the topics studied in this dissertation. Additionally, we also give an overview of the results and important findings. In the second chapter, we examine the impact of speculative information on the oil price and the corresponding implications on the macroeconomy. We use a structural vector autoregression (VAR) model to decompose the shocks of the crude oil price and use the gold price as a proxy for the speculative information. We argue that using the gold price to account for speculative information is a very informative alternative to the other indicators used in literature. Our results show that speculative information plays a very important role in driving crude oil price shocks; it accounts for about 20% of the variation of the oil price. Furthermore, we show that speculative shocks to the crude oil price are correlated to future macroeconomic downturns. We also show that speculative shocks may create inflation pressure, although the effect is not as strong as that on the macroeconomic output growth. In the third chapter, we use a generalized autoregressive conditional heteroskedasticity (GARCH) specification to model the volatility on both the oil and stock markets and then utilize an extension of the GARCH-M (GARCH in mean) vector autoregression (VAR) model introduced in Elder (2004) to capture the volatility spillover relationship between the two markets and the relationship between the volatility of the oil price and stock returns at the same time. Further, we detect a structural change of the oil price-stock returns relationship near the middle of 1987. A unidirectional volatility spillover from the stock market to the oil market is found to be statistically significant before the break, while a negative relationship between oil price volatility and the conditional mean of stock returns is more pronounced afterwards. We argue that several events happening around the break point are likely to be the causes for the structural change. In the last chapter, we summarize the work and highlight the important results in this dissertation. In addition, we also discuss possible future research directions.
Author: Deren Unalmis
Publisher: International Monetary Fund
ISBN: 1475586361
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
Building on recent work on the role of speculation and inventories in oil markets, we embed a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. We find that business-cycle driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982-2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. Our results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock.
Author: Robert B. Barsky
Publisher:
ISBN:
Category : Economic history
Languages : en
Pages : 52
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Book Description
Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth. In this paper, we review the arguments supporting such views. First, we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining macroeconomic fluctuations, and we trace how the arguments of proponents of the oil view have evolved in response to these difficulties. Second, we challenge the notion that at least the major oil price movements can be viewed as exogenous with respect to the US macroeconomy. We examine critically the evidence that has led many economists to ascribe a central role to exogenous political events in modeling the oil market, and we provide arguments in favor of 'reverse causality' from macroeconomic variables to oil prices. Third, although none of the more recent oil price shocks has been associated with stagflation in the US economy, a major reason for the continued popularity of the oil shock hypothesis has been the perception that only oil price shocks are able to explain the US stagflation of the 1970s. We show that this is not the case.
Author: H.G. Huntington
Publisher: Elsevier
ISBN: 1483295451
Category : Business & Economics
Languages : en
Pages : 350
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Book Description
Large-scale macroeconomic models have been used extensively to analyze a wide range of important economic issues. They were originally developed to study the economy's response to monetary and fiscal policies. During the 1970s these models were expanded and revised to track the inflationary processes and to incorporate key energy variables so that they could be used to examine the impacts of energy price shocks.This study compares the responses of 14 prominent macroeconomic models to supply-side shocks in the form of sudden energy price increases or decreases and to policies for lessening the impacts of price jumps. Four energy price shocks were examined: oil price increases of 50 and 20 percent, an oil price reduction of 20 percent, and an 80 percent increase in domestic natural gas prices. Five policy responses were considered for offsetting the GNP impacts of the larger oil price increase: monetary accommodation, an income tax rate reduction, an increase in the investment tax credit for equipment, a reduction in the employer's payroll tax rate, and an oil stockpile release.The study was conducted by a working group comprised of about 40 modelers and potential model users from universities, business, and government. As in previous EMF studies, the group pursued two broad goals. Firstly, they sought to understand the models themselves by identifying important similarities as well as structural differences. Secondly, they sought to use the models to sharpen their understanding of energy shocks and of the related policy issues. Their conclusions appear as the first chapter in this volume, the remaining chapters providing more technical treatment of the key structural differences among the participating models as well as their use for evaluating energy policies.This volume is addressed particularly to those interested in the energy shock issue, as well as to those with a broader interest in macroeconomic models and policies.
