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Oil Prices and the Impact of the Financial Crisis of 2007-2009

21 Pages Posted: 28 Mar 2011 Last revised: 2 Apr 2011

A. (Tassos) G. Malliaris

Loyola University of Chicago - Department of Economics

Ramaprasad Bhar

UNSW Australia Business School, School of Banking and Finance

Date Written: December 10, 2010

Abstract

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.

Keywords: Oil prices, Euro, Gold, Time series analysis, Markov switching regimes

JEL Classification: C22, E44, G12

Suggested Citation

Malliaris, A. (Tassos) G. and Bhar, Ramaprasad, Oil Prices and the Impact of the Financial Crisis of 2007-2009 (December 10, 2010). Energy Economics, 2011. Available at SSRN: https://ssrn.com/abstract=1794269

A. (Tassos) G. Malliaris (Contact Author)

Loyola University of Chicago - Department of Economics ( email )

16 E. Pearson Ave
Quinlan School of Business
Chicago, IL 60611
United States
312-915-6063 (Phone)

Ramaprasad Bhar

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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