The Differential Effects of Oil Demand and Supply Shocks on the Global Economy

By Paul Cashin, Kamiar Mohaddes, Mehdi Raissi, Maziar Raissi

October 23, 2012

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Paul Cashin, Kamiar Mohaddes, Mehdi Raissi, and Maziar Raissi. The Differential Effects of Oil Demand and Supply Shocks on the Global Economy, (USA: International Monetary Fund, 2012) 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

We employ a set of sign restrictions on the generalized impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, to discriminate between supply-driven and demand-driven oil-price shocks and to study the time profile of their macroeconomic effects for different countries. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures and a short-run increase in real output.

Subject: Commodities, Econometric analysis, Foreign exchange, Oil, Oil prices, Oil production, Prices, Production, Real effective exchange rates, Vector autoregression

Keywords: Africa, Error correction term, Global, Global macroeconomic modeling, Global VAR (GVAR), Impulse responses, Interconnectedness, International business cycle, Middle East, North Africa, Oil, Oil exporter, Oil price, Oil prices, Oil production, Oil-demand and oil-supply shocks, Oil-price shock, Real effective exchange rates, Shock result, Vector autoregression, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/253
Stock No:

WPIEA2012253
ISBN:

9781475597158
ISSN:

1018-5941

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