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Oil price shocks in a data-rich environment

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  • Aastveit, Knut Are

Abstract

This paper examines the impact of different types of oil price shocks on the U.S. economy, using a factor-augmented VAR (FAVAR) approach. The results indicate that when examining the effects of oil price shocks, it is important to account for the interaction between the oil market and the macroeconomy. I find that oil demand shocks are more important than oil supply shocks in driving several macroeconomic variables, and that the origin of demand shocks matters. Specifically, the U.S. economy and monetary policy respond differently to global demand shocks that have the effect of raising the price of oil and to oil-specific demand shocks.

Suggested Citation

  • Aastveit, Knut Are, 2014. "Oil price shocks in a data-rich environment," Energy Economics, Elsevier, vol. 45(C), pages 268-279.
    • Handle: RePEc:eee:eneeco:v:45:y:2014:i:c:p:268-279
    DOI: 10.1016/j.eneco.2014.07.006
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    22. Stock, J.H. & Watson, M.W., 2016. "Dynamic Factor Models, Factor-Augmented Vector Autoregressions, and Structural Vector Autoregressions in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 415-525, Elsevier.
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    More about this item

    Keywords

    Oil demand shocks; Oil supply shocks; Business cycle; Monetary policy; Factor model; FAVAR;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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