Macroeconomic Fluctuations, Oil Supply Shocks, and Equilibrium Oil Futures Prices

51 Pages Posted: 24 Oct 2014 Last revised: 29 Sep 2016

See all articles by Steffen Hitzemann

Steffen Hitzemann

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: September 1, 2016

Abstract

What is the role of macroeconomic fluctuations and of oil supply shocks for oil prices, volatilities, and risk premia? I analyze this question within a general equilibrium asset pricing framework with an oil sector. The benchmark calibration shows that short-run macroeconomic growth shocks and oil productivity shocks account for the largest part of the volatility in the oil market and are responsible for the mean-reversion behavior of oil prices. On the other hand, long-run macroeconomic growth risks are the main driver of risk premia on oil futures and their upward-sloping term structure, which is observed in the data. The model consistently explains quantity and price dynamics in the oil sector and in the general macroeconomy, and furthermore sheds light on the intricate relationship between oil and equity returns.

Keywords: oil market, general equilibrium, futures prices, risk premia

JEL Classification: E2, E3, G12, Q43

Suggested Citation

Hitzemann, Steffen, Macroeconomic Fluctuations, Oil Supply Shocks, and Equilibrium Oil Futures Prices (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2513624 or http://dx.doi.org/10.2139/ssrn.2513624

Steffen Hitzemann (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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