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Oil Shocks and External Balances

Author/Editor: Kilian, Lutz | Rebucci, Alessandro | Spatafora, Nicola
Authorized for Distribution: May 1, 2007
Electronic Access: Free Full Text (PDF file size is 433KB)
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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: This paper studies the effects of demand and supply shocks in the global crude oil market on several measures of countries' external balance, including the oil and non-oil trade balances, the current account, and changes in net foreign assets (NFA) during 1975-2004. We explicitly take a global perspective. In addition to the U.S., the Euro area and Japan, we consider a number of country groups including oil exporters and middle-income oil-importing economies. We find that the effect of oil shocks on the merchandise trade balance and the current account, which depending on the source of the shock can be large, depends critically on the response of the nonoil trade balance, and differs systematically between the U.S. and other oil importing countries. Using the Lane-Milesi-Ferretti NFA data set, we document the presence of large and systematic (if not always statistically significant) valuation effects in response to oil shocks, not only for the U.S., but also for other oil-importing economies and for oil exporters. Our estimates suggest that increased international financial integration will tend to cushion the effect of oil shocks on NFA positions for major oil exporters and the U.S., but may amplify it for other oil importers.
 
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Series: Working Paper No. 07/110
Subject(s): Oil prices | External shocks | Supply | Demand | Balance of trade | Globalization | Current account | Trade integration
Author's keyword(s): Oil prices | external balances | oil demand shocks | oil supply shocks | International Financial Integration
 
English  
    Published:   May 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007110   Pages:   39
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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