Oil Shocks and External Balances

45 Pages Posted: 23 May 2008

See all articles by Lutz Kilian

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nicola Spatafora

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2007

Abstract

This paper studies the effects of demand and supply shocks in the global crude oil market on several measures of countries'external balance, including the oil trade balance, the non-oil trade balance, the current account and changes in net foreign assets (NFA) during 1975-2004. We explicitly take a multilateral and global perspective. In addition to the United States, the Euro area and Japan, we consider a number of regional aggregates including oil-exporting economies and middle-income oil-importing economies. Our first result is that the effect of oil shocks on the merchandise trade balance and the current account, which depending on the source of the shock can be large, depends critically on the response of the non-oil trade balance, and differs systematically between the United States and other oil importing countries. Second, using the Lane-Milesi-Ferretti NFA data set, we document the presence of large and systematic (if not always statistically significant) valuation effects in response to oil shocks, not only for the United States, but also for other oil-importing economies and for oil exporters. Our estimates suggest that increased international financial integration will tend to cushion the effect of oil shocks on NFA positions for major oil exporters and for the United States, but may amplify it for other oil importers.

Keywords: Balance of payments, External balances, International financial integration, Oil demand shocks, Oil prices, Oil supply shocks

JEL Classification: F32, F36, O16, O57, Q43

Suggested Citation

Kilian, Lutz and Rebucci, Alessandro and Spatafora, Nikola, Oil Shocks and External Balances (May 2007). CEPR Discussion Paper No. DP6303. Available at SSRN: https://ssrn.com/abstract=1136610

Lutz Kilian (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

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Baltimore, MD 21202
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HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Nikola Spatafora

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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