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News Shocks in Open Economies: Evidence from Giant Oil Discoveries
Author:
Mr. Rabah Arezki
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Valerie A Ramey null

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Liugang Sheng null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 209
Language:
English
Publication Date:
29 Sep 2015
DOI:
https://doi.org/10.5089/9781513543154.001
ISBN:
9781513543154
ISSN:
1018-5941
Pages:
54
Keywords:
WP; open economy; substitution effect; oil; news shocks; current account and business cycles; investment-GDP ratio; oil discovery; ratio decrease; account-GDP ratio; saving-GDP ratio; anticipation effect; Current account; Oil production; Oil sector; Consumption; Middle East; Global; North Africa
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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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund