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Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices

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  • Ms. Malika Pant
  • Mr. Martin Mühleisen
  • Mr. Alun H. Thomas

Abstract

Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.

Suggested Citation

  • Ms. Malika Pant & Mr. Martin Mühleisen & Mr. Alun H. Thomas, 2010. "Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices," IMF Working Papers 2010/186, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/186
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    References listed on IDEAS

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    1. repec:kap:iaecre:v:12:y:2006:i:3:p:390-394 is not listed on IDEAS
    2. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    3. Michael Ye & John Zyren & Joanne Shore, 2006. "Short-Run Crude Oil Price and Surplus Production Capacity," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 12(3), pages 390-394, August.
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    Cited by:

    1. Belke, Ansgar & Bordon, Ingo G. & Volz, Ulrich, 2013. "Effects of Global Liquidity on Commodity and Food Prices," World Development, Elsevier, vol. 44(C), pages 31-43.
    2. Stuermer, Martin, 2018. "150 Years Of Boom And Bust: What Drives Mineral Commodity Prices?," Macroeconomic Dynamics, Cambridge University Press, vol. 22(3), pages 702-717, April.
    3. Ms. Sally Chen & Mr. Philip Liu & Andrea M. Maechler & Chris Marsh & Mr. Sergejs Saksonovs & Mr. Hyun S Shin, 2012. "Exploring the Dynamics of Global Liquidity," IMF Working Papers 2012/246, International Monetary Fund.
    4. Peter Tillmann, 2017. "Global Liquidity and the Impact on SEACEN Economies," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp100, April.
    5. Dayanandan, Ajit & Donker, Han, 2011. "Oil prices and accounting profits of oil and gas companies," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 252-257.
    6. Robert Socha & Piotr Wdowiński, 2018. "Crude oil price and speculative activity: a cointegration analysis," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(3), pages 263-304, September.

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