Oil Price Dynamics, Macro-Finance Interactions and the Role of Financial Speculation

64 Pages Posted: 19 Mar 2012 Last revised: 9 Jun 2013

See all articles by Claudio Morana

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); University of Bologna - Rimini Center for Economic Analysis (RCEA)

Multiple version iconThere are 2 versions of this paper

Date Written: March 19, 2012

Abstract

What is the role of financial speculation in determining the real oil price? We find that while macroeconomic shocks have been the major upward driver of the real oil price since the mid 1980s, also financial shocks have sizably contributed since the early 2000s, and at a much larger extent since the mid 2000s: over the period 2004:1 through 2010:3, the real oil price increased 65%; of the latter, 33% is related to fundamental financial shocks, 11% to non fundamental financial shocks, with macroeconomic and oil market supply side shocks contributing with a 5% and 3% increase, respectively. Yet, it would be inaccurate describing the third oil price shock as a purely financial episode: macroeconomic shocks largely accounted for the 65% real oil price run up over the 2007(2)-2008 (2) period, and similarly for the -67% and -31% contractions in 2008(4) and 2009(1); only over the 2009(2) through 2009(4) period macroeconomic and financial shocks equally contributed to the 54% real oil price increase. Hence, while we find support to the demand side view of real oil price determination, we also find a much larger role for financial shocks than previously noted in the literature.

Keywords: Oil Price, Financial speculation, Macro-finance Interface, International Business Cycle, Factor Vector Autoregressive Models

JEL Classification: C22, E32, G12

Suggested Citation

Morana, Claudio, Oil Price Dynamics, Macro-Finance Interactions and the Role of Financial Speculation (March 19, 2012). FEEM Working Paper No. 7.2012, Available at SSRN: https://ssrn.com/abstract=2025787 or http://dx.doi.org/10.2139/ssrn.2025787

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

Dip Economia Metodi Quantitativi Strategie Impresa
Piazza dell'Ateneno Nuovo 1
Milano, 20126
Italy
+39 0264483091 (Phone)

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

Moncalieri, Turin
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
93
Abstract Views
938
rank
309,081
PlumX Metrics