Monday, 30 May 2011

Oil price shocks

Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market - Lutz Killian

Shocks to the real price of oil may reflect oil supply shocks, shocks to the global demand for all industrial commodities, or demand shocks that are specific to the crude oil market. Each shock has different effects on the real price of oil and on US macroeconomic aggregates. Changes in the composition of shocks help explain why regressions of macroeconomic aggregates on oil prices tend to be unstable.

Evidence that the recent surge in oil prices was driven primarily by global demand shocks helps explain why this shock so far has failed to cause a major recession in the United States.

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