News, Noise and Oil Price Swings

Luca Gambetti and Laura Moretti ()

No 12/RT/17, Research Technical Papers from Central Bank of Ireland

Abstract: We interpret oil price fluctuations as the result of agents reaction to news about oil market fundamentals. Agents form expectations about future developments in oil production with limited information, and they only observe a noisy signal about its possible changes. We find that a large part of oil price swings is attributable to shocks that do not have any effect on oil production or global demand indexes. The finding is obtained using a VAR with dynamic rotations. We interpret this shock, through the lenses of a simple imperfect information rational expectations framework, as a noise shock in the oil market.

Keywords: Oil price shocks; Bubbles; Nonfundamentalness; SVAR; Imperfect Information. (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-ene, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:12/rt/17

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