Oil Supply News in a VAR: Information from Financial Markets

36 Pages Posted: 7 Aug 2007

Date Written: June 2007

Abstract

This paper analyzes the macroeconomic effects on the U.S. economy of news about oil supply by estimating a VAR. Information contained in daily quotations of oil futures contracts is exploited to estimate the dynamic path of oil prices following a shock. Hence, differently from the VAR literature on oil shocks we do not need to rely on recursive identification. Impulse response functions suggest that oil supply disruptions have stagflationary effects on the U.S. economy. Historical decomposition shows that oil shocks contributed significantly to the US recessions of the last thirty years, but not all exogenous increases in oil prices induced a recession. Finally, the contribution of oil shocks to inflation fluctuations seems to have declined over time.

Keywords: vector autoregression, oil shock, futures, news

JEL Classification: C2, E3, O41

Suggested Citation

Pagano, Patrizio and Anzuini, Alessio and Pisani, Massimiliano, Oil Supply News in a VAR: Information from Financial Markets (June 2007). Bank of Italy Temi di Discussione (Working Paper) No. 632. Available at SSRN: https://ssrn.com/abstract=1005176 or http://dx.doi.org/10.2139/ssrn.1005176

Patrizio Pagano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alessio Anzuini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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