News Shocks in Open Economies: Evidence from Giant Oil Discoveries
September 29, 2015
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Summary
This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.
Subject: Balance of payments, Commodities, Consumption, Current account, Economic sectors, National accounts, Oil, Oil production, Oil sector, Production
Keywords: account-GDP ratio, anticipation effect, Consumption, Current account, current account and business cycles, Global, investment-GDP ratio, Middle East, news shocks, North Africa, oil, oil discovery, Oil production, Oil sector, open economy, ratio decrease, saving-GDP ratio, substitution effect, WP
Pages:
54
Volume:
2015
DOI:
Issue:
209
Series:
Working Paper No. 2015/209
Stock No:
WPIEA2015209
ISBN:
9781513543154
ISSN:
1018-5941
