How Oil Supply Shocks Affect the Global Economy: Evidence from Local Projections

Olivier Gervais

No 2019-6, Discussion Papers from Bank of Canada

Abstract: We provide empirical evidence on the impact of oil supply shocks on global aggregates. To do this, we first extract structural oil supply shocks from a standard oil-price determination model found in the literature. Impulse response functions are then estimated using local projections. This technique has recently been used to estimate the effect of monetary policy and government spending shocks. To our knowledge, however, this is the first time it is used to analyze the effect of oil supply shocks on global aggregates. While there is a high level of uncertainty around our estimates, results can be summarized with three main takeaways. Following a supply-driven decline in oil prices: (1) US business investment usually decreases, highlighting the importance of the shale oil industry, while the reaction of US gross domestic product (GDP) is often not statistically significant; (2) domestic demand in the euro area usually increases strongly; and (3) GDP among commodity exporters declines in the short term, reflecting the importance of the terms-of-trade channel, but increases in the longer term, reflecting the aggregate benefits of increased oil production.

Keywords: Business fluctuations and cycles; International topics (search for similar items in EconPapers)
JEL-codes: C22 C5 E37 Q43 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2019-07
New Economics Papers: this item is included in nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/2019/07/staff-discussion-paper-2019-6/ Abstract (text/html)
https://www.bankofcanada.ca/wp-content/uploads/2019/07/sdp2019-6.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:19-6

Access Statistics for this paper

More papers in Discussion Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by (website@bank-banque-canada.ca).