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Activity Number:
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360
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Type:
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Invited
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Date/Time:
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Wednesday, August 1, 2007 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #307676 |
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Title:
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Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
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Author(s):
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Lutz Kilian*+
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Companies:
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University of Michigan
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Address:
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Department of Economics, Ann Arbor, MI, 48109-1220,
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Keywords:
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Exogeneity ; Causality ; Identification ; Dynamic multipliers ; Oil price shocks ; Structural VAR model
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Abstract:
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Given the existence of reverse causality, cause and effect are no longer well defined when relating changes in the real price of oil to macroeconomic outcomes. This creates special challenges for econometric work on oil price shocks. This paper proposes a new method of identifying the exogenous shocks underlying the real price of oil including shifts in the uncertainty about future oil supplies. I quantify the magnitude and timing of these shocks, their dynamic effects on the real price of oil and their relative importance in determining the real price of oil during specific historical episodes. The paper also develops regression methods that allow us to refute the common notion that an increase in the real price of oil has the same effect on the U.S. macro economy regardless of the underlying cause of that increase.
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