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Estimating the Macroeconomic Effects of Oil Supply News

Author

Listed:
  • Lorenzo Mori
  • Gert Peersman
Abstract
A common approach for estimating the macroeconomic effects of oil supply news employs SVAR-IV models identified using changes in oil futures prices around OPEC quota announcements as an instrument. However, we show that the reduced-form oil price innovations, structural shocks, and the instrumental variable in these estimations are all Granger-caused by financial variables, indicating informational deficiencies in the VAR model and contamination of the instrument. To resolve these issues, we incorporate financial indicators into the econometrician’s information set, yielding significantly different results. These include a sharper short-term output decline, lower and less persistent inflationary effects, and a reversal of the monetary policy response. Our results also show greater stability over time and the disappearance of puzzling responses. Finally, we identify similar issues in other prominent oil-market SVAR models, suggesting that informational deficiencies are a pervasive issue in oil-market research.

Suggested Citation

  • Lorenzo Mori & Gert Peersman, 2024. "Estimating the Macroeconomic Effects of Oil Supply News," CESifo Working Paper Series 11532, CESifo.
    • Handle: RePEc:ces:ceswps:_11532
    as

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    References listed on IDEAS

    as
    1. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2015. "What Drives Oil Prices? Emerging Versus Developed Economies," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(7), pages 1013-1028, November.
    2. Martin Bruns & Helmut Luetkepohl, 2023. "Have the Effects of Shocks to Oil Price Expectations Changed? Evidence from Heteroskedastic Proxy Vector Autoregressions," University of East Anglia School of Economics Working Paper Series 2023-03, School of Economics, University of East Anglia, Norwich, UK..
    3. Patzelt, Paula & Reis, Ricardo, 2024. "Estimating the rise in expected inflation from higher energy prices," CEPR Discussion Papers 18907, C.E.P.R. Discussion Papers.
    4. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    5. Karel Mertens & Morten O. Ravn, 2019. "The Dynamic Effects of Personal and Corporate Income Tax Changes in the United States: Reply," American Economic Review, American Economic Association, vol. 109(7), pages 2679-2691, July.
    6. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    7. Régis Barnichon & Geert Mesters, 2023. "A Sufficient Statistics Approach for Macro Policy," American Economic Review, American Economic Association, vol. 113(11), pages 2809-2845, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    oil supply news shocks; OPEC announcements; SVAR-IV; informational deficiencies;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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