Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices

18 Pages Posted: 24 Aug 2010

See all articles by Alun H. Thomas

Alun H. Thomas

International Monetary Fund (IMF) - European Department

Martin Mühleisen

affiliation not provided to SSRN

Malika Pant

International Monetary Fund (IMF)

Date Written: August 2010

Abstract

Global oil markets were roiled by sharp price swings in 2008, and economists are still divided over the reasons for the unusual volatility. Those emphasizing fundamentals point to inelastic supply and demand curves, others view the phenomenon mostly as a result of financial investors flocking into commodity markets. This paper attempts to infer the strength of these competing hypotheses, using a simultaneous equation model that enables us to undertake a separate analysis of supply and demand factors. The model broadly captures both the surge and subsequent fall in prices, with a particularly strong impact of demand factors. The model captures a strong effect of a measure for global liquidity but does not find support for a speculative motive.

Keywords: Oil prices, Oil consumption, Commodity markets, Economic models, Demand, International capital markets, Supply

Suggested Citation

Thomas, Alun and Mühleisen, Martin and Pant, Malika, Peaks, Spikes, and Barrels: Modeling Sharp Movements in Oil Prices (August 2010). IMF Working Paper No. 10/186, Available at SSRN: https://ssrn.com/abstract=1662259

Alun Thomas

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Martin Mühleisen

affiliation not provided to SSRN

No Address Available

Malika Pant

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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