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Historical and Variance Decomposition for Oil Price, Oil Consumption, OPEC and Non-OPEC Oil Production

Author

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  • Somayeh Azami

    (Department of Economics, Faculty of Social Science and Education, Razi University, Kermanshah, Iran.)

  • Shahram Fattahi

    (Department of Economics, Faculty of Social Science and Education, Razi University, Kermanshah, Iran.)

  • Mehdi Rezaei

    (Department of Economics, Faculty ofSocial Science and Education, Razi University, Kermanshah, Iran.)

Abstract

In this paper, the behavior of the real oil price and OPEC and non-OPEC oil productionduring 1973-2013 are modelled. Interactions among OPEC, non-OPEC oil production, global oil consumption, and the real price of crude oil are estimated using a Structural VAR model (SVAR). Afterproviding evidence forthe structural breaksin oil price in 1996, the results indicate that,according to variance decomposition analysis,during the two periods of 1973-1996and 1997-2013, OPEC oil production respondedsignificantly to positive shocks of global oil consumptionand non-OPEC oil production responded significantly to shocks of OPECoil production. DuringtheOPEC era(1973-1996), real oil price respondedsignificantly to positive shocks of OPEC oil production and during the new industrial age (1997-2013)responded significantly to positive shocks of global oil consumption. According to historical decomposition, the cumulativeeffects of structural shocks of non-OPEC oil production and price on OPEC oil production are greater than the cumulative effects of structural shocks of OPEC oil production and real oil price on non-OPEC oil production.Also, cumulativeeffectsof structural shocks of OPEC oil production onreal oil pricearegreater than cumulative effect of structural shocks of non-OPEC oil production on real oil price.

Suggested Citation

  • Somayeh Azami & Shahram Fattahi & Mehdi Rezaei, 2017. "Historical and Variance Decomposition for Oil Price, Oil Consumption, OPEC and Non-OPEC Oil Production," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(3), pages 519-541, Summer.
    • Handle: RePEc:eut:journl:v:21:y:2017:i:3:p:519
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