Effects of Oil Supply News on Korean GDP, Prices and Net Exports: A Proxy FAVAR Approach

Cho Cheol-Keun () and Kim Myunghyun ()
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Cho Cheol-Keun: University of Ulsan, Ulsan, Republic of Korea, Postal: Assistant Professor, Department of Economics, University of Ulsan, Ulsan, Republic of Korea.
Kim Myunghyun: Sungkyunkwan University, Seoul, Republic of Korea, Postal: Associate Professor, Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea

Journal of Economic Integration, 2025, vol. 40, issue 1, 145-155

Abstract: We consider a proxy FAVAR (Factor-Augmented Vector Autoregression) model to analyze the impact of an oil supply news shock on the Korean economy. To identify an oil supply news shock, we use the variation in oil futures prices around OPEC production announcements as a proxy. Moreover, we include a factor that captures the common movement of many Korean macro variables such as various price indices and investment. The estimation results of the proxy FAVAR model show that an oil supply news shock increases the real oil price and the US CPI, and decreases world oil production and US GDP. As for Korean macro variables, GDP and net exports fall and CPI increases in response to the shock.

Keywords: External Instruments; Factor; High-Frequency Data; OPEC; Oil Supply News Shocks (search for similar items in EconPapers)
JEL-codes: E31 E32 Q43 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0938

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