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The Differential Effects of Oil Demand and Supply Shocks on the Global Economy

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  • Mr. Paul Cashin
  • Mr. Kamiar Mohaddes
  • Mr. Mehdi Raissi
  • Maziar Raissi

Abstract

We employ a set of sign restrictions on the generalized impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2–2011Q2, to discriminate between supply-driven and demand-driven oil-price shocks and to study the time profile of their macroeconomic effects for different countries. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures and a short-run increase in real output.

Suggested Citation

  • Mr. Paul Cashin & Mr. Kamiar Mohaddes & Mr. Mehdi Raissi & Maziar Raissi, 2012. "The Differential Effects of Oil Demand and Supply Shocks on the Global Economy," IMF Working Papers 2012/253, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2012/253
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    More about this item

    Keywords

    WP; Global VAR (GVAR); interconnectedness; global macroeconomic modeling; impulse responses; international business cycle; oil-demand and oil-supply shocks; oil exporter; oil-price shock; oil price; shock result; error correction term; Oil; Oil prices; Vector autoregression; Oil production; Real effective exchange rates; Global; Middle East; Africa; North Africa;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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