Oil Prices and the Impact of the Financial Crisis of 2007-2009
A. (Tassos) G. Malliaris
Quinlan School of Business
UNSW Australia Business School, School of Banking and Finance
December 10, 2010
Energy Economics, 2011
Oil prices increased dramatically during 2004-6. Industry experts initially attributed these price increases to fundamental factors such as the rise in global demand, but also because of disruptions in the supply of oil. The price increases however were so substantial that additional factors are needed to explain such dramatic changes. We propose that the decline in the value of the U.S. dollar measured both by the appreciation of the Euro and of gold prices, played an important role as oil suppliers demanded compensation for the declining value of the dollar. Using a Markov switching regime methodology we find evidence that this hypothesis is true prior to the financial crisis, but its validity does not hold after the crisis when oil prices crashed and the dollar rallied.
Number of Pages in PDF File: 21
Keywords: Oil prices, Euro, Gold, Time series analysis, Markov switching regimes
JEL Classification: C22, E44, G12
Date posted: March 28, 2011 ; Last revised: April 2, 2011
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