How Persistent are Shocks to Energy Prices?
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Whether shocks to energy prices are permanent or transitory remains a contentious issue. This may result from mis-specification of the econometric tests, due for example to the uncertainty over the presence of a trend, or the possible presence of structural breaks and non-stationary volatility in the data. This paper makes a contribution by addressing the underlying characteristics of energy price data that influence such econometric tests. First, we detect whether the data are characterised by non-stationary volatility and possible trend breaks. The next step involves employing novel unit root tests that unify the underlying characteristics, such as trend break and/or nonstationary volatility, of the data. We conclude shocks to energy prices are not transitory. We further decompose a benchmark oil price and its demand and supply components into their permanent and transitory components and compute the cross correlations to find that they conform to standard theories of commodity storage models.Keywords:
Econometric model
Price shock
Demand shock
Demand shock
Supply shock
Price shock
Vector autoregression
Oil supply
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The paper takes the US,EU-15 and China's data from 1980 to 2008 as the research sample and carries on the study about the gradually weakened negative even positive correlation between oil price fluctuation and economic growth from the perspective of the sources of oil price shocks.First of all,rolling VAR approach is used for testing the dynamic changing relationship and SVAR model is built to decompose the oil price shocks into the supply shocks,economic demand shocks and oil-specific demand shocks;the oil price fluctuation is mainly driven by the economic demand shocks in the past ten years.Further empirical results indicate that the correlation between oil price fluctuation driven by the supply shocks and oil-specific demand shocks and the economic growth is negative,and as a result of declining oil intensity,low inflation environment and other reasons,the negative correlation gradually weakens;When the oil price fluctuation is driven by the economic demand shocks,the positive pulling effect of economic demand shocks on the economy is greater than the negative effect of rising oil price in the short term,then the oil price rise and economic growth will move in the same direction.These results are verified in the three economy bodies.Therefore,it is necessary to distinguish the sources of oil price shocks when studying the correlation between oil price fluctuation and economic growth.The conclusion has important guiding significances for the government department to make corresponding strategies dealing with rising oil prices.
Demand shock
Supply shock
Negative correlation
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Price shock
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This paper utilizes structural vector autoregression models to examine the impact of oil price shocks on key Jamaican macroeconomic variables over the period 1997:01-2012:06. The results indicate that oil price shocks largely do not have a permanent effect on the Jamaican economy. Furthermore, the findings suggest that an oil shock emanating from an increase in global aggregate demand generally precedes an improvement in the domestic economy while demand shocks associated with precautionary holdings of oil (oil-specific demand shocks) and oil supply shocks generally result in a deterioration in domestic macroeconomic variables.
Structural vector autoregression
Vector autoregression
Demand shock
Oil supply
Supply shock
Price shock
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Since the end of World War II, oil price shocks and its impact on the economy have been a hot topic among economic researchers and agents. The price of oil has experienced several fluctuations duri ...
Consumption
Price shock
Oil consumption
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Price shock
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This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the macroeconomy. I find that oil demand shocks are more important than oil supply shocks in driving several macroeconomic variables, and that the origin of demand shocks matter. Specifically, the U.S. economy and monetary policy respond differently to global demand shocks that have the effect of raising the price of oil and to oil-specific demand shocks.
Demand shock
Supply shock
Oil supply
Price shock
Vector autoregression
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Demand shock
Vector autoregression
Structural vector autoregression
Oil supply
Survey data collection
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In this paper we examine how the impact of oil price movements on the UK economy differs depending on the underlying source of the shock, that is, whether the oil price has been driven by a supply, or demand, disturbance. In addition we employ an empirical framework with time-varying parameters to allow us to see how the impact of oil price shocks may have developed over time. In line with earlier studies on larger economies, we find that the source of the shock does indeed affect the size and nature of the eventual impact on the UK economy. Oil supply shocks typically lead to larger negative impacts on output and slightly higher increases in inflation relative to oil shocks stemming from shocks to world demand, which typically have smaller and largely positive, impacts on UK output. We find evidence that the nature of shocks in the world oil market has changed over time, with the oil price becoming more sensitive to changes in oil production. There is also evidence that the impact of oil shocks became much smaller from the mid-1980s onwards, although the impact has risen slightly since around 2004.
Oil supply
Supply shock
Demand shock
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This paper provides a quantitative analysis of the change in the price of oil due to an exogenous change in the supply of oil. It first outlines the role of oil in large-scale econometric models and reviews the theory upon which the oil/energy sectors in these models are based. It then presents a small reduced form of the large-scale econometric model and discusses the model’s key parameters. The model is solved in order to determine the price of oil in the event of an oil supply disruption. The paper then discusses the sensitivity of the price effects of an oil market disruption to changes in the model’s parameters and compares this range of price estimates to the three major supply disruptions of the past two decades.
Oil supply
Econometric model
Econometric analysis
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