News Shocks in Open Economies: Evidence from Giant Oil Discoveries

Rabah Arezki, Valerie Ramey and Liugang Sheng

No 153, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ̶ the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.

Keywords: news shocks; current account; saving; investment; employment; oil; discovery (search for similar items in EconPapers)
JEL-codes: E00 F3 F4 (search for similar items in EconPapers)
Date: 2015-01-06
New Economics Papers: this item is included in nep-ene, nep-mac and nep-opm
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: News Shocks in Open Economies: Evidence from Giant Oil Discoveries (2017)
Working Paper: News Shocks in Open Economies: Evidence from Giant Oil Discoveries (2015)
Working Paper: News Shocks in Open Economies: Evidence from Giant Oil Discoveries (2015)
Working Paper: News Shocks in Open Economies: Evidence from Giant Oil Discoveries (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:153

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