Oil Price Shocks: Causes and Consequences

39 Pages Posted: 2 Jun 2014

See all articles by Lutz Kilian

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: February 2014

Abstract

Research on oil markets conducted during the last decade has challenged long-held beliefs about the causes and consequences of oil price shocks. As the empirical and theoretical models used by economists have evolved, so has our understanding of the determinants of oil price shocks and of the interaction between oil markets and the global economy. Some of the key insights are that the real price of oil is endogenous with respect to economic fundamentals, and that oil price shocks do not occur ceteris paribus. This makes it necessary to explicitly account for the demand and supply shocks underlying oil price shocks when studying their transmission to the domestic economy. Disentangling cause and effect in the relationship between oil prices and the economy requires structural models of the global economy including the oil market.

Keywords: Asymmetries, Business cycle, Channels of transmission, Demand, Macroeconomy, Supply

JEL Classification: Q43

Suggested Citation

Kilian, Lutz, Oil Price Shocks: Causes and Consequences (February 2014). CEPR Discussion Paper No. DP9823. Available at SSRN: https://ssrn.com/abstract=2444824

Lutz Kilian (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2320 (Phone)
734-764-2769 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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