Peaks, Spikes, and Barrels : Modeling Sharp Movements in Oil Prices

Author/Editor:

Malika Pant ; Martin Mühleisen ; Alun H. Thomas

Publication Date:

August 1, 2010

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:

Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.

Series:

Working Paper No. 10/186

Subject:

English

Publication Date:

August 1, 2010

ISBN/ISSN:

9781455202201/1018-5941

Stock No:

WPIEA2010186

Format:

Paper

Pages:

17

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