Oil Price Shocks: Causes and Consequences

Posted: 8 Oct 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: November 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. As a result, one must 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.

Suggested Citation

Kilian, Lutz, Oil Price Shocks: Causes and Consequences (November 2014). Annual Review of Resource Economics, Vol. 6, Issue 1, pp. 133-154, 2014. Available at SSRN: https://ssrn.com/abstract=2507220 or http://dx.doi.org/10.1146/annurev-resource-083013-114701

Lutz Kilian (Contact Author)

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Centre for Economic Policy Research (CEPR)

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