Macroeconomic Effects of Precautionary Demand for Oil

32 Pages Posted: 12 Jul 2013

Date Written: July 12, 2013

Abstract

We evaluate the macroeconomic effects of shocks specific to the oil market, which mainly reflect fluctuations in precautionary demand for oil driven by uncertainty about future supplies. A two-stage identification procedure is used. First, daily changes in the futures-spot spread proxy for precautionary demand shocks and the path of oil prices is estimated. This information is then exploited to restrict the oil price response in a VAR. Impulse responses suggest that such shocks reduce output and raise prices. Historical decomposition shows that they contributed significantly to the U.S. recessions in the 1990s and in the early 2000s, but not to the most recent slump.

Keywords: vector autoregression, oil shock, futures, news

JEL Classification: C2, E3, O41

Suggested Citation

Anzuini, Alessio and Pagano, Patrizio and Pisani, Massimiliano, Macroeconomic Effects of Precautionary Demand for Oil (July 12, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 918. Available at SSRN: https://ssrn.com/abstract=2293038 or http://dx.doi.org/10.2139/ssrn.2293038

Alessio Anzuini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Patrizio Pagano (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Massimiliano Pisani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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