The time varying effect of oil price shocks on euro-area exports

Abstract

In this paper we provide novel evidence on changes in the relationship between the real price of oil and real exports in the euro area. By combining robust predictions on the sign of the impulse responses obtained from a theoretical model with restrictions on the slope of the oil demand and oil supply curves, we identify oil supply and foreign productivity shocks in a time varying VAR with stochastic volatility.We nd that from the 1980s onwards the relationship between oil prices and euro area exports has become less negative conditional on oil supply shortfalls and more positive conditional on foreign productivity shocks. Using the theoretical model we show that our empirical ndings can be accounted for by (i) stronger trade relationship between the euro area and emerging economies (ii) a decrease in the share of oil in production and (iii) increased competitive pressures in the product market. JEL classication: C32, E3, F14.

Effects of oil shocks on EMU exports: technological level differences

“…This shock is associated with a temporary time consistent increase in real economic activity and a very short-run increase in oil production, however, their reaction is marginal at the very best and is not statistically significant. These results, however, correspond with the findings of Riggi and Venditti (2015) as they found the implication of this shock on oil production to be silent as well. Additionally, oil producers are much more sensitive to oil markets innovations during volatility times caused by either political or economic events (Figure 6d).…”

“…The effect here is not absolutely clear, as it was already stressed in the previous section. Moreover, Riggi and Venditti (2015) came with a similar finding. As we explained in the previous subsection, positive oil-price shock increases economic activity only marginally and thus cannot be reflected in export in a different manner.…”

“…Our results are closely linked to papers of Kilian et al (2009) and Riggi and Venditti (2015) who also examine the oil market and its relations to real economic activity or the level of export. We contribute to the existing literature by investigating the effects of oil-price shocks on technological structure of export of oil-importing countries.…”

“…Backus and Crucini (2000) or Schubert (2009) agree that oil-price shocks can impact negatively trade balance of oil-importing countries because imported oil directly enters into the input for domestic production. 5 Riggi and Venditti (2015) analysed time-varying effect of oil-price shocks on EMU export. They find that EMU exports have become less dependent on oil-supply shortfalls but otherwise more dependent on foreign productivity shocks since 1980s.…”

Exchange Rate Pass-Through to Domestic Prices in New EU Member Countries

“…Neistota na medzinárodných devízových trhoch spoločne s vyššou volatilitou menových kurzov viedla k nárastu citlivosti domácich ekonomík na tendencie vo vývoji ich významných obchodných partnerov (Riggi a Venditti, 2015), ako aj na fluktuácie kurzov mien najvýznamnej-ších svetových ekonomík. Nárast pozornosti preto vyvolalo skúmanie pohybou menových kurzov a cenových prispôsobení v sektore obchodovateľných tovarov (Lian a Wang, 2012).…”