Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions

36 Pages Posted: 12 Jun 2008

Date Written: May 2008

Abstract

We consider an economy where the oil price, industrial production, and other macroeconomic variables fluctuate in response to a variety of fundamental shocks. We estimate the effects of different structural shocks using robust sign restrictions suggested by theory using US data for the 1973-2007 period. The estimates show that identifying the shock underlying the oil price change is important to predict the sign and the magnitude of its correlates with the US production. The results offer a natural explanation for the smaller correlation between oil prices and US production in the recent years compared to the seventies.

Keywords: Business cycle, Oil prices, Sign Restrictions, Structural VAR

JEL Classification: C32, E3, F4

Suggested Citation

Lippi, Francesco and Nobili, Andrea, Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions (May 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1143193

Francesco Lippi (Contact Author)

University of Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

Andrea Nobili

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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