Abstract
Nonfundamentalness issue on the global oil market has been addressed by either augmenting small-scale VAR models by additional variables or latent factors, or using external instrument or proxies leading to more credible identification scheme. We tackle this problem by estimating a non-causal VAR model for standard global oil market variables. We identify the oil supply news shock as a shock that drives global oil production the most for a finite time horizon. First, Our findings highlight the prominent role of expectations in propagating the shock. Second, we show that a negative oil supply news shock results in abrupt and permanent reaction in global oil production, global economic activity and in oil inventory. However, the oil supply shock has only a limited effect on oil price. Finally, news shock about oil supply shortfalls do have macroeconomic consequences as it causes a substantial decline in US industrial production.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call