Measuring Oil-Price Shocks Using Market-Based Information

Measuring Oil-Price Shocks Using Market-Based Information

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The authors study the effects of oil-price shocks on the U.S economy combining narrative and quantitative approaches. After examining daily oil-related events since 1984, they classify them into various event types. They then develop measures of exogenous shocks that avoid endogeneity and predictability concerns. Estimation results indicate that oil-price shocks have had substantial and statistically significant effects during the last 25 years. In contrast, traditional vector auto-regression (VAR) approaches imply much weaker and insignificant effects for the same period. This discrepancy stems from the inability of VARs to separate exogenous oil-supply shocks from endogenous oil-price fluctuations driven by changes in oil demand. Illustrations.To correctly identify exogenous oil shocks, we first collect oil-market related information from a number of oil-industry trade journals and government publications, and compile a database identifying all major events that have significantlyanbsp;...

Title:Measuring Oil-Price Shocks Using Market-Based Information
Author: Tao Wu
Publisher:DIANE Publishing - 2010-10

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