On the Sources of Oil Price Fluctuations, Issues 2009-2285
International Monetary Fund, Dec 1, 2009 - Business & Economics - 28 pages
"Analyzing macroeconomic impacts of oil price changes requires first to investigate different sources of these changes and their distinct effects. Kilian (2009) analyzes the effects of an oil supply shock, an aggregate demand shock, and a precautionary oil demand shock. The paper's aim is to model macroeconomic consequences of these shocks within a new Keynesian DSGE framework. It models a small open economy and the rest of the world together to discover both accompanying effects of oil price changes and their international transmission mechanisms. Our results indicate that different sources of oil price fluctuations bring remarkably diverse outcomes for both economies ."- -Abstract.
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aggregate demand shocks assume Blanchard and Gali channels consumer price inflation CPI Inflation ROW deviations from SS Domestic Inflation SOE Efficiency of oil elasticity of substitution endogenously Euler equation Exchange Rate SOE firms foreign economy future oil supply global government spending shock higher oil prices Impulse Responses Interest Rate SOE Kilian labor productivity shock Log-Linearized Form macroeconomic marginal cost Model in Log-Linearized Monacelli 2005 monetary authority Nominal Interest Rate Oil Market Equilibrium oil price changes oil price fluctuations oil price increases oil price shocks oil reserves Oil ROW oil shock Oil SOE oil supply disruption Oil Supply Shock oil supply shortage output gap Output ROW Output SOE period Phillips curve precautionary demand precautionary oil demand price of oil production function Rate ROW real exchange rate real oil price real price ROW increases Shock Percent deviations small open economy spillover effect steady-state level transmission mechanism unexpected oil supply world aggregate demand world oil