Nexvu Capital

Nexvu on Economics, Politics and the Markets

  • Enter your email address to follow this blog and receive notifications of new posts by email.

    Join 1,022 other followers

  • Nexvu on Twitter

  • Previous Posts

OIL PRICE MOVEMENTS AND THE GLOBAL ECONOMY

Posted by nexvucapital on December 9, 2014

We have attached two NBER papers that address the effects of oil price movements on the Global Economy:

THE EFFECTS OF OIL PRICE CHANGES ON THE INDUSTRY-LEVEL PRODUCTION

In this paper, we decompose oil price changes into their component parts following Kilian (2009) and estimate the dynamic effects of each component on industry-level production and prices in the U.S. and Japan using identified VAR models. The way oil price changes affect each industry depends on what kind of underlying shock drives oil price changes as well as on industry characteristics. Unexpected disruptions of oil supply act mainly as negative supply shocks for oil-intensive industries and act mainly as negative demand shocks for less oil-intensive industries. For most industries in the U.S., shocks to the global demand for all industrial commodities act mainly as positive demand shocks, and demand shocks that are specific to the global oil market act mainly as negative supply shocks. In Japan, the oil-specific demand shocks as well as the global demand shocks act mainly as positive demand shocks for many industries.

OIL PRICE MOVEMENTS AND THE GLOBAL ECONOMY

We develop a five-region version (Canada, a group of oil exporting countries, the United States, emerging Asia and Japan plus the euro area) of the Global Economy Model (GEM) encompassing production and trade of crude oil, and use it to study the international transmission mechanism of shocks that drive oil prices. In the presence of real adjustment costs that reduce the short- and medium-term responses of oil supply and demand, our simulations can account for large endogenous variations of oil prices with large effects on the terms of trade of oil-exporting versus oil-importing countries (in particular, emerging Asia), and result in significant wealth transfers between regions. This is especially true when we consider a sustained increase in productivity growth or a shift in production technology towards more capital- (and hence oil-) intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline that are used to reduce taxes on labor income, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption.

Source: NBER

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: