Measuring Oil-Price Shocks Using Market-Based Information

Author/Editor: Tao Wu ; Michele Cavallo
Publication Date: January 01, 2012
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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: We study the effects of oil-price shocks on the U.S. economy combining narrative and quantitative approaches. After examining daily oil-related events since 1984, we classify them into various event types. We then develop measures of exogenous shocks that avoid endogeneity and predictability concerns. Estimation results indicate that oil-price shocks have had substantial and statistically significant effects during the last 25 years. In contrast, traditional VAR approaches imply much weaker and insignificant effects for the same period. This discrepancy stems from the inability of VARs to separate exogenous oil-supply shocks from endogenous oil-price fluctuations driven by changes in oil demand.
Series: Working Paper No. 12/19
Frequency: Quarterly
Subject(s): Commodity price fluctuations | External shocks | Oil prices | Price increases

Author's Keyword(s): Oil Shocks | Market-Based Information | VAR Identification
Publication Date: January 01, 2012
ISBN/ISSN: 9781463931810/1018-5941 Format: Paper
Stock No: WPIEA2012019 Pages: 42
US$18.00 (Academic Rate:
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