The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
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.