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

Paul Cashin (), Kamiar Mohaddes (), Maziar Raissi and Mehdi Raissi
Authors registered in the RePEc Author Service: Mehdi Raissi

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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.

Keywords: Global VAR (GVAR); interconnectedness; global macroeconomic modeling; impulse responses; international business cycle; oil-demand and oil-supply shocks. (search for similar items in EconPapers)
JEL-codes: C32 E17 F44 F47 Q41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cwa and nep-ene
Date: 2012-11-01
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