The Effect of Income Shocks on the Oil Price

Alfonso A. Irarrazabal () and Lin Ma ()
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Alfonso A. Irarrazabal: BI Norwegian Business School, Postal: Department of Economics, BI Norwegian Business School
Lin Ma: School of Economics and Business, Norwegian University of Life Sciences, Postal: Norwegian University of Life Sciences, School of Economics and Business, P.O. Box 5003 NMBU, N-1432 Ås, Norway

No 9-2018, Working Paper Series from Norwegian University of Life Sciences, School of Economics and Business

Abstract: This paper identifies the effect of income shocks on the real price of oil. We find that for the period 1973-2016 shocks to world GDP created a response of a permanent rise in the oil price. In contrast, oil production does not correct the disequilibrium from a stable long-run equilibrium. Whereas shocks to GDP are persistent, shocks to the oil price are mostly transitory once we control for changes in world GDP and oil production. We find evidence of a structural change in the response of the oil price after 1973. We conjecture that the response of oil production is key to the differences.

Keywords: Oil Market; Real Oil Price; Commodity Markets; Cointegratio (search for similar items in EconPapers)
JEL-codes: C13 C22 Q02 Q43 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2018-09-17
New Economics Papers: this item is included in nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nlsseb:2018_009

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