Time-Varying Effects of Oil Supply Shocks on the US Economy

Abstract

We use vector autoregressions with drifting coefficients and stochastic volatility to investigate how the dynamic effects of oil supply shocks on the U.S. economy have changed over time.

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

“…This change might simply reect an increase in the relative importance of expansionary global shocks (which stimulate both oil demand and global trade) in accounting for oil price variability in more recent periods. This hypothesis is supported, for instance, by ndings in Kilian (2009) and Baumeister and Peersman (2013b). A complementary explanation, which constitutes the focus of our paper, is that, conditional on each shock, the relationship between the price of oil and euro-area exports has varied over time owing to some structural changes that have inuenced the joint dynamics of the two macroeconomic variables.…”

“…The choice of the cuto date (1984) is motivated by the ndings in Hooker (1999), Edelstein and Kilian (2009) and Blanchard and Galì (2010) who identify a break in the relationship between the real price of oil and economic activity around the mid-Eighties, both for the U.S. and for the largest euro-area economies. 3 In the rst sub-sample no clear co-movement emerges between real exports and the real price of oil, as the correlation coecient stands at 0.12 and it is not signicantly dierent from zero. In the second part of the sample, 2 For the years prior to the Monetary Union an estimate of the exchange rate between the euro and the U.S. dollar, as well as of the consumption deator and of real exports, is provided by the ECB Area Wide Model.…”

“…In the second part of the sample, 2 For the years prior to the Monetary Union an estimate of the exchange rate between the euro and the U.S. dollar, as well as of the consumption deator and of real exports, is provided by the ECB Area Wide Model. 3 We do not rely on formal break tests to date the change in the regression coecients since these tests have been shown to have very low power in detecting time variation when the parameters of the true data generating process behave as a random walk (Benati, 2007). 4 instead, a strong positive correlation (0.44) emerges.…”

“…In the next section we turn to a structural theoretical model that will provide us with some guidance for a deeper structural analysis of this issue. 3 The theoretical model Our model is a variant of Clarida, Galì and Gertler (2002), extended to consider the role of oil price dynamics in the spirit of Campolmi (2008) and Lipinska and Millard (2012). In our economy there are two oil importing countries, home ( H) and foreign (F ).…”

Forecasting the real prices of crude oil under economic and statistical constraints

“…It has been widely accepted that large fluctuations in oil prices have important effects on the economies in both oil-importing and oilexporting countries (Baumeister and Peersman, 2013;Bernanke et al, 1997;Hamilton, 1983Hamilton, , 1996Hamilton, , 2003Hamilton, , 2011Hooker, 1996;Kilian, 2008aKilian, , 2008bKilian, , 2009Mork, 1989;Wang et al, 2013). Therefore, reliable oil price forecasts are required by a wide range of departments.…”