News Shocks in Open Economies: Evidence from Giant Oil Discoveries

By Rabah Arezki, Valerie A Ramey, Liugang Sheng

September 29, 2015

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Format: Chicago

Rabah Arezki, Valerie A Ramey, and Liugang Sheng. News Shocks in Open Economies: Evidence from Giant Oil Discoveries, (USA: International Monetary Fund, 2015) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.

Subject: Balance of payments, Commodities, Consumption, Current account, Economic sectors, National accounts, Oil, Oil production, Oil sector, Production

Keywords: Account-GDP ratio, Anticipation effect, Consumption, Current account, Current account and business cycles, Global, Investment-GDP ratio, Middle East, News shocks, North Africa, Oil, Oil discovery, Oil production, Oil sector, Open economy, Ratio decrease, Saving-GDP ratio, Substitution effect, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/209
Stock No:

WPIEA2015209
ISBN:

9781513543154
ISSN:

1018-5941

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