Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?

Abstract

Recently developed structural models of the global crude oil market imply that the surge in the real price of oil between mid 2003 and mid 2008 was driven by repeated positive shocks to the demand for all industrial commodities, reflecting unexpectedly high growth mainly in emerging Asia. We evaluate this proposition using an alternative data source and a different econometric methodology. Rather than inferring demand shocks from an econometric model, we utilize a direct measure of global demand shocks based on revisions of professional real gross domestic product (GDP) growth forecasts. We show that forecast surprises during 2003–2008 were associated primarily with unexpected growth in emerging economies (in conjunction with much smaller positive GDP‐weighted forecast surprises in the major industrialized economies), that markets were repeatedly surprised by the strength of this growth, that these surprises were associated with a hump‐shaped response of the real price of oil that reaches its peak after 12–16 months, and that news about global growth predict much of the surge in the real price of oil from mid 2003 until mid 2008 and much of its subsequent decline. Copyright © 2012 John Wiley & Sons, Ltd.

Monetary Policy Responses to Oil Price Fluctuations

“…6 Our model of the oil market focuses on the demand side of the market, while keeping the supply side deliberately simple, similar to Backus and Crucini (1998). This approach is in line with overwhelming empirical evidence in recent years that the large fluctuations in the real price of oil have been driven by demand shocks (see, for example, Bodenstein and Guerrieri, 2011;Kilian, 2009;Kilian and Hicks, 2011;Kilian andMurphy, 2010, 2012). A number of recent DSGE studies have imposed more structure on the supply side of the crude oil market, often focusing on models of imperfect competition (see, for example, Nakov and Pescatori, 2010a, b;Balke, Brown, and Yu¨cel, 2010;Nakov and Nun˜o, 2011).…”

Effects of speculation and interest rates in a “carry trade” model of commodity prices

“…Also OECD and World Bank. For the opposing viewpoint, see Kilian and Hicks (2012). 5 Frankel (2008b) and Hamilton (2008Hamilton ( , 2009 the one hand and market participants' expectations of future price changes on the other hand.…”

Effects of oil shocks on EMU exports: technological level differences

“…Using structural VAR model, authors as Bernanke et al (1997), Lee and Ni (2002), Peersman (2005) or Peersman and Van Robays (2009) identified oilsupply shocks, oil-demand shocks and oil-specific demand shocks. Kilian and Hicks (2012) or Aastveit et al (2015) found that surge of real oil-price in the 2000s was caused by a rapid growth of demand in emerging economies.…”