On the Sources and Consequences of Oil Price Shocks: The Role of Storage

42 Pages Posted: 19 Dec 2012

See all articles by Deren Unalmis

Deren Unalmis

University of York

Ibrahim Unalmis

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

D. Filiz Unsal

International Monetary Fund (IMF) - Research Department

Date Written: November 2012

Abstract

Building on recent work on the role of speculation and inventories in oil markets, we embed a competitive oil storage model within a DSGE model of the U.S. economy. This enables us to formally analyze the impact of a (speculative) storage demand shock and to assess how the effects of various demand and supply shocks change in the presence of oil storage facility. We find that business-cycle driven oil demand shocks are the most important drivers of U.S. oil price fluctuations during 1982-2007. Disregarding the storage facility in the model causes a considerable upward bias in the estimated role of oil supply shocks in driving oil price fluctuations. Our results also confirm that a change in the composition of shocks helps explain the resilience of the macroeconomic environment to the oil price surge after 2003. Finally, speculative storage is shown to have a mitigating or amplifying role depending on the nature of the shock.

Keywords: Oil prices, United States, External shocks, Demand, Supply, Price increases, Monetary policy, Fiscal policy, Economic models, oil storage, oil price fluctuations, oil demand and oil supply shocks speculative oil demand, sticky-price DSGE model, inflation, monetary policy, price fluctuations, oil prices, nominal interest rate, elasticity of substitution, market equilibrium, real interest rate, open economy, output growth, exogenous shock, price inflation, rational expectations, oil shock, monetary economics, investment goods, closed economy, gdp deflator, terms of trade, aggregate consumption, closed economies, external shocks, commodity prices, real interest rates, fixed investment, return o

Suggested Citation

Unalmis, Deren and Unalmis, Ibrahim and Unsal, D. Filiz, On the Sources and Consequences of Oil Price Shocks: The Role of Storage (November 2012). IMF Working Paper No. 12/270, Available at SSRN: https://ssrn.com/abstract=2191415

Deren Unalmis (Contact Author)

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

Ibrahim Unalmis

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

D. Filiz Unsal

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

700 19th Street NW
Washington, DC 20431
United States

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