What Do Firm Managers Tell Us About the Transmission Channels of Oil Price Shocks?

Dirk Drechsel (), Heiner Mikosch and Samad Sarferaz ()
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Dirk Drechsel: KOF Swiss Economic Institute, ETH Zurich, Switzerland
Samad Sarferaz: KOF Swiss Economic Institute, ETH Zurich, Switzerland

No 22-507, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: In this paper, we investigate the transmission channels of oil price shocks using a factorial survey. We confront CEOs and CFOs of a representative sample of firms with a hypothetical vignette in which the oil price rises exogenously above managers’ baseline expectations. The managers then estimate the short- and medium-term cost, price, and output effects of the shock on their firms. We find that the managers expect the shock to have very different effects on their firms: the cross-sectional distributions of the responses are large, skewed, and have fat tails. Higher firm-specific energy input costs lead managers to expect greater output losses and sales price increases. Higher market power accelerates this input cost effect. Another important determinant is managers’ pre-shock uncertainty about business prospects. The importance of the three channels varies considerably across industries.

Keywords: Oil price shocks; Transmission channel; firms; expectations; surveys; Vignette (search for similar items in EconPapers)
JEL-codes: E31 E5 L11 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-11
New Economics Papers: this item is included in nep-bec and nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:22-507

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