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Exploring the Robustness of the Oil Price-Macroeconomy Relationship
This paper reexamines the oil price-macroeconomy relationship with rolling Granger causality and structural stability tests. It finds that this relationship broke down amidst the falling oil prices and market collapse of the 1980s, suggesting misspecification of the oil price rather than a weakened relationship. Some proposed respecifications of the oil price yield considerable improvements, although they are not sufficient to achieve Granger causality of output unless interest rates are excluded from the VAR. There is some support for the explanation that oil prices affect the economy ...
Industry Effects of Oil Price Shocks: Re-Examination
Sectoral responses to oil price shocks help determine how these shocks are transmitted through the economy. Textbook treatments of oil price shocks often emphasize negative supply effects on oil importing countries. By contrast, the seminal contribution of Lee and Ni (2002) has shown that almost all U.S. industries experience oil price shocks largely through a reduction in their respective demands. Only industries with very high oil intensities face a supply-driven reduction. In this paper, we re-examine this seminal findings using two additional decades of data. Further, we apply updated ...
Do oil endowment and productivity matter for accumulation of international reserves?
We develop a dynamic stochastic optimization model with oil price shocks to show that countries with certain combinations of oil endowment and productivity have strong precautionary incentives to accumulate foreign reserves in response to oil price shocks. Using the Simulated Method of Moments to estimate the model we demonstrate how oil price shocks are absorbed by changes in foreign reserves which, in turn, leads to less variation in aggregate consumption. Along with productivity and oil endowment, we also consider as determinants of reserves holding conventional variables such as trade- ...