Oil Shocks in a Global Perspective: Are they Really That Bad?

Author/Editor:

Tobias N. Rasmussen ; Agustin Roitman

Publication Date:

August 1, 2011

Electronic Access:

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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:

Using a comprehensive global dataset, we outline stylized facts characterizing relationships between crude oil prices and macroeconomic developments across the world. Approaching the data from several angles, we find that the impact of higher oil prices on oil-importing economies is generally small: a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less. While cross-country differences in impact are found to depend mainly on the relative size of oil imports, we also show that oil price shocks are not always costly for oil-importing countries: although higher oil prices increase the import bill, there are partly offsetting increases in external receipts. We provide a small open economy model illustrating the main transmission channels of oil shocks, and show how the recycling of petrodollars may mitigate the impact.

Series:

Working Paper No. 2011/194

Subject:

Commodities Exports Imports Inflation International trade Oil Oil prices Prices

English

Publication Date:

August 1, 2011

ISBN/ISSN:

9781462305254/1018-5941

Stock No:

WPIEA2011194

Pages:

29

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