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Measuring Oil-Price Shocks Using Market-Based Information
Author: Mr. Tao Wu and Mr. Michele Cavallo
Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 019
Language:
English
Publication Date:
01 Jan 2012
DOI:
https://doi.org/10.5089/9781463931810.001
ISBN:
9781463931810
ISSN:
1018-5941
Pages:
42
Keywords:
WP; oil-price shock; price level; shock measure; oil-price forecasting equation; oil-price movement; price decline; Oil Shocks; Market-Based Information; VAR Identification; oil-price indicator; oil-price forecasting model; oil price movement; oil-price increase; oil-price channel; exogenous oil-price shock; oil price shock; Oil prices; Oil; Oil production; Consumer price indexes; Inflation; Global; Middle East
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the effects of oil-price shocks on the U.S. economy combining narrative and quantitative approaches. After examining daily oil-related events since 1984, we classify them into various event types. We then develop measures of exogenous shocks that avoid endogeneity and predictability concerns. Estimation results indicate that oil-price shocks have had substantial and statistically significant effects during the last 25 years. In contrast, traditional VAR approaches imply much weaker and insignificant effects for the same period. This discrepancy stems from the inability of VARs to separate exogenous oil-supply shocks from endogenous oil-price fluctuations driven by changes in oil demand.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund

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