Why is Inflation so Low in the Euro Area?

Asymmetric influence of oil demand and supply shocks on meat commodities

On the transmission of oil supply and demand shocks to CO2 emissions in the US by considering uncertainty: A time-varying perspective

Oil price can have influential effects on inflation as oil is used as the main source in many productions. In this paper, we perform comparative analyses on studying the impacts of oil price shocks on determining the domestic inflation in two groups of countries, i.e. oil importing versus oil exporting countries. In particular, we look into the effects of oil supply and oil demand shocks on determining the domestic inflation. A structural vector autoregressive model is used in analyzing the effects of orthogonalized shocks on inflation. A Blanchard-Quah identification is applied on the long-run impact matrix. We focus the analyses on ten oil importing and ten oil exporting countries respectively. The data ranging from 1973M1 onwards till 2015M1. Our results detect interaction effects among variables. We also observe that oil supply shock is more influential in explaining CPI inflation compared to oil demand shocks. Oil supply shock can be a determinant to inflation in oil importing countries but oil demand has very limited explanatory power on explaining inflation in most countries. Inflation in the main oil exporting countries does not respond to neither oil supply shock nor oil demand shock. The results reveal that oil dependency may determine the magnitude impact of oil supply and oil demand shocks on inflation.

Inflation in the euro area has been falling since mid-2013, turned negative at the end of 2014 and remained below target thereafter. This paper employs a Bayesian VAR to quantify the contribution of a set of structural shocks, identified by means of sign restrictions, to inflation and economic activity. Shocks to oil supply do not tell the full story about the disinflation that started in 2013, as both aggregate demand and monetary policy shocks also played an important role. The lower bound to policy rates turned the European Central Bank (ECB) conventional monetary policy de facto contractionary. A country analysis confirms that the negative effects of oil supply and monetary policy shocks on inflation was widespread, albeit with different intensity across countries. The ECB unconventional measures since 2014 contributed to raising inflation and economic activity in all the countries. All in all, our analysis confirms the appropriateness of the ECB asset purchase programme.

In light of the U.S. shale oil boom and given that commercial shale oil production has been mostly confined to the USA, this paper disentangles the oil supply determinant into its U.S. and non-U.S. production components, and studies their impact on U.S. real personal consumption expenditures (PCE) and on U.S. index of consumer sentiment (ICS). First, I estimate a structural VAR model to identify and study the effect of structural shocks in the crude oil market on PCE and ICS. The results show that while PCE and ICS respond negatively to oil demand shocks, they respond differently to oil supply shocks. While ICS experiences transitory negative response to both oil supply shocks, PCE shows that the response of inflation and output differs depending on whether the oil supply shock is domestic or foreign. Second, I compute the forecast-error-variance decompositions to quantify the contribution of oil supply and demand shocks to the historical fluctuations in PCE and ICS. My findings reveal that most of the variation in PCE is explained by oil supply shocks—unlike ICS where most of its variation is explained by aggregate demand shocks. Third, I conduct a historical decomposition exercise to examine the contributions of structural oil shocks in explaining historical changes in PCE and ICS. My results indicate a strong presence of U.S. oil supply shock in boosting ICS during the 2014 period of the oil price drop. Finally, the results that not all oil supply shocks are alike are robust to alternative measures of real economic activity.

We investigate the economic effects of three separate types of oil price shocks on the U.S. economy using a factor augmented vector autoregression framework and 185 monthly macroeconomic indicators from 1978 to 2017. We find that while increases in the price of crude oil triggered by oil supply shocks and oil demand shocks lead to a significant and permanent increase in the U.S. price level, the main drivers of fluctuations in the price of crude oil and the U.S. price level are oil-specific precautionary demand shocks. Further, while increases in the price of oil triggered by oil supply shocks are recessionary and lower U.S. economic activity, those triggered by oil demand shocks driven by global economic activity are associated with increased U.S. economic activity. We also find evidence that monetary policy-makers tighten monetary policy in response to oil demand shocks to mitigate inflationary effects, however we find no such evidence for oil supply shocks. Finally, we find the U.S. dollar real exchange rate depreciates in response to increases in the price of oil caused by both oil demand and supply shocks, however the effects from oil supply shocks are more permanent.

ABSTRACTThe recent increases in oil prices have raised the importance of studying the effects of oil supply and demand shocks on an economy. The purpose of this paper is to investigate the impact of the oil supply and demand shocks on the South African economy using a sign restriction-based structural Vector Autoregressive (VAR) model. The results of this study show that an oil supply shock has a short-lived significant impact only on the inflation rate, while the impact on the other variables is statistically insignificant. Supply disruptions result in a short-term increase in the domestic inflation rate with no reaction from the monetary policy. An aggregate demand shock results in short- to medium-term improvements in domestic output and the real exchange rate. The effect is statistically insignificant for the inflation rate as well as the monetary policy instrument. The inflation rate and the real exchange rate react negatively to an oil-specific demand shock, while output is positively related to unanticipated changes in oil price due to speculations. This study’s results highlight the importance of understanding the source of the oil price movements, since an oil price increase necessarily does not imply a negative effect on the economy.

This article takes the impact of international oil price shocks on China's economic growth as the research object, and studies the impact mechanism of international oil price shocks on China's economic development status, providing practical value for the formulation of relevant policies in China. This article selects monthly data from January 2007 to December 2023 as the research interval, and uses the SVAR model to decompose the changes in international oil prices into three different sources of structural oil supply and demand shocks, namely oil supply shocks, oil total demand shocks, and oil specific demand shocks. The research results show that overall, the impact of international oil price shocks on China's economic growth is relatively low. International oil price shocks will have a negative impact on China's economic growth, and the average contribution of the three structural oil supply and demand shocks to China's economic growth does not exceed 13.1%. The impact of specific oil demand shocks on China's economic growth is the greatest, followed by oil supply shocks and total oil demand shocks, which indirectly reflect that China's economic growth is mainly influenced by its own factors.

Based on a structural vector autoregression (SVAR) model, we investigate the impacts of different types of oil price shocks on industrial producer price index (PPI) in China for the period from 1996:10 to 2017:6. The results show that an increase in oil prices caused by oil supply shocks has negative impacts on China’s industrial PPI, while industrial PPI and an increase in oil prices caused by aggregate demand and oil-specific demand shocks move in the same direction. There are significant inter-industry differences in the effect of oil price shocks on industrial PPI. Energy intensity is an important factor affecting the inter-industry differences in oil supply and oil-specific demand shocks, while the inter-industry differences in aggregate demand shocks are mainly affected by export dependence. A variance decomposition analysis reveals that the increase in oil prices driven by aggregate demand shocks has the most important influence on the PPIs in most sub-industries.

This study’s primary contribution lies in conducting a comprehensive evaluation of how oil supply and demand shocks affect Korea’s economic growth, particularly emphasizing the role of uncertainty in global trade policies. Our research is primarily motivated by the desire to comprehend how various oil-related shocks impact a highly oil-import-dependent advanced economy like Korea, especially amid the fluctuating landscape of global trade policies. Employing a multi-step methodology that includes Structural Vector Autoregression (SVAR), Autoregressive Distributed Lag (ARDL), and Nonlinear ARDL models, we delve into an extensive analysis spanning from 1998:Q1 to 2021:Q4. Our findings reveal that Korea’s economic growth is primarily influenced by aggregate and oil-specific demand shocks rather than oil supply shocks in the short and long term. Additionally, we observe an asymmetric influence of aggregate demand and oil-specific demand shocks on Korea’s long-term growth. However, such asymmetry is not evident across these three shock types in the short term. Lastly, we underscore the significant role of global trade policy uncertainty in assessing the impact of oil prices on Korea’s economic expansion. Our study’s unique focus on oil supply and demand shocks alongside policy uncertainty distinguishes it, emphasizing its distinct contribution to the field.

This study explores the asymmetric impact of oil supply and demand shocks on the sectoral stock market returns of Pakistan. For this purpose, the study uses the non-linear autoregressive distributed lag (ARDL) approach based on monthly time series data for four sectors in the Pakistan Stock Exchange over the period 2005–2018. First, the findings of the unit root tests identified that all data series are stationary at first difference. Second, the F-bound test explored that oil supply and demand shocks have a cointegration relationship with sectoral stock market returns. Third, the study explored the asymmetric impact of oil supply shocks (OSS) and oil-specific demand shocks (OSDS) on sectoral returns of commercial banking and the symmetric impact of oil demand shocks (ODS) on sectoral returns of commercial banking. In addition, the asymmetric impact of oil supply shocks (OSS) and oil demand shocks (ODS) on sectoral returns of the power generation, chemical and fertilizer sectors was found. Moreover, the symmetric impact of oil-specific demand shocks (OSDS) on sectoral returns of the power generation, chemical and fertilizer sectors was explored. The study suggests important policy implications for policymakers and investors.

The primary objective of this article is to estimate how the spike in oil prices has impacted Saudi Arabia's output and other macroeconomic indicators. To address this question, the study utilizes a simple VAR estimation and VAR estimation with sign restrictions, specifically an oil demand shock and an oil supply shock, to determine the influence of oil price shocks. The study's findings are consistent with conventional wisdom and current research from oil-exporting countries. Consistent with all model specifications for both periods (monthly 2010q1 to 2020q2 and quarterly 1996q1 to 2020q2), the study finds that an oil price shock benefits the Saudi Arabian economy. The results indicate that a 10% increase in oil prices leads to a 2% increase in output, a 0.15 percentage point increase in the consumer price index, a 6% increase in export value, and a 3% increase in import value. The study highlights the importance of considering both oil supply and demand shocks in analyzing the impact of oil price fluctuations and concludes that the demand shock is more influential than the supply shock.

The primary contribution of the present paper is to explicitly take into consideration the role that the three different components of crude oil shocks – oil supply shocks, aggregate demand shocks, and oil-specific demand shocks – when studying the nexus between oil price shocks and the South Korean won (KRW). We discover that oil demand shocks have had significant impacts on KRW over the past two decades: that is, an upsurge in oil prices driven by positive shocks in aggregate demand and oil-specific demand appears to appreciate KRW. However, oil supply shocks turn out to have negligible impacts. We also unveil that two oil demand shocks seem to asymmetrically influence KRW in the short run.

Unraveling the structural sources of oil production and their impact on CO2 emissions

With the recent changes in international financial markets, investors and policy-makers are paying special attention to the relationship between oil price shocks and equity markets. This paper investigates how oil supply and oil demand shocks interact with OECD countries and macroeconomic variables within a cointegration vector error correction framework, which provides extreme flexibility with a parsimonious specification. By defining oil supply and oil demand shocks as endogenous variables, our proposed model allows us to gauge the shock transmission among the system variables through time and investigate the direct and indirect connections between oil price shocks and stock returns. We are also able to observe the long-run relationship between real stock prices and real oil prices measured by world and local prices. Our empirical findings show that the impact of oil price shocks substantially differs among the countries and that the significance of the results differs among the oil price specifications (real national oil price, world oil price, supply shocks and demand shocks).