Measuring Oil-Price Shocks Using Market-Based Information
DIANE Publishing, 2010 - 39 pages
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.
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18 Months 24-month cumulative output asymmetric VAR-based measure based measure Bernanke change Predicting error coeﬃcients construct crude oil Crude petroleum 24 Crude petroleum Months cumulative output loss deﬁned deﬁnitions of exogenous diﬀerent economic eﬀects of oil-price event types event-types exogenous oil shocks exogenous oil-price shocks Federal Funds Rate Federal Reserve Board ﬁnd ﬁnding ﬁrst Funds Rate 24 Funds Rate Months Gertler Haver Analytics mnemonic identiﬁcation strategies impulse responses insigniﬁcant Kilian log-price change Log−price change Predicting macroeconomic eﬀects Mark Gertler market-information-based measures measures of exogenous measures of oil-price monetary policy oil demand oil price increase oil production oil-price ﬂuctuations oil-price shock measures OPEC output response percent precautionary demand Predicting error Figure preshock level price of oil producer price index real GDP declines reﬂect responses implied shock 24 shock CPI 24 shock Federal Funds shock series Speciﬁcally spot price statistically signiﬁcant subsample period U.S. economy variables vector autoregression Wall Street Journal