Oil Shocks in a Global Perspective: Are they Really That Bad?
IMF Working Papers, August 1, 2011
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Bibliographic details
- Authors: Tobias N. Rasmussen, Agustin Roitman
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462305254.001
Summary
- Using a comprehensive global dataset, the paper outlines stylized facts characterizing relationships between crude oil prices and macroeconomic developments across the world.
- Main empirical finding: a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less in oil-importing economies.
- Cross-country differences in impact depend mainly on the relative size of oil imports.
- 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.
- The paper provides a small open economy model illustrating the main transmission channels of oil shocks and shows how the recycling of petrodollars may mitigate the impact.
Key empirical findings and statistics
- "25 percent increase in oil prices" — typical shock size used in presentation of impact.
- Impact on oil-importing economies: "typically causes GDP to fall by about half of one percent or less."
- Cross-country heterogeneity: depends mainly on the relative size of oil imports.
- Offsetting mechanism: higher oil prices → higher import bill, but "partly offsetting increases in external receipts."
Model and transmission channels
- The authors present a small open economy model to illustrate main transmission channels of oil shocks.
- The model highlights the role of external receipts and the recycling of petrodollars in mitigating the adverse effects of higher oil prices on oil-importing economies.
Policy-relevant implications
- The recycling of petrodollars can mitigate the impact of oil price shocks on oil-importing economies.
- Policy focus should consider the size of oil imports relative to the economy when assessing vulnerability to oil price shocks.
- Recognition that oil price increases can generate partly offsetting external receipts suggests that the net macroeconomic cost to oil-importing countries may be smaller than implied by import-bill changes alone.