Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us

40 Pages Posted: 13 Jan 2016 Last revised: 4 Jan 2018

See all articles by Christiane Baumeister

Christiane Baumeister

University of Notre Dame

Lutz Kilian

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 11, 2016

Abstract

It has been forty years since the oil crisis of 1973/74. This crisis has been one of the defining economic events of the 1970s and has shaped how many economists think about oil price shocks. In recent years, a large literature on the economic determinants of oil price fluctuations has emerged. Drawing on this literature, we first provide an overview of the causes of all major oil price fluctuations between 1973 and 2014. We then discuss why oil price fluctuations remain difficult to predict, despite economists’ improved understanding of oil markets. Unexpected oil price fluctuations are commonly referred to as oil price shocks. We document that, in practice, consumers, policymakers, financial market participants and economists may have different oil price expectations, and that, what may be surprising to some, need not be equally surprising to others.

Keywords: Oil market, oil price shock, heterogeneous price expectations, OPEC, peak oil, unconventional oil

JEL Classification: Q43, C53

Suggested Citation

Baumeister, Christiane and Kilian, Lutz, Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us (January 11, 2016). CFS Working Paper, No. 525. Available at SSRN: https://ssrn.com/abstract=2714319 or http://dx.doi.org/10.2139/ssrn.2714319

Christiane Baumeister (Contact Author)

University of Notre Dame ( email )

722 Flanner Hall
Notre Dame, IN 46556
United States
+1 574 631 8450 (Phone)

HOME PAGE: http://https://sites.google.com/site/cjsbaumeister/

Lutz Kilian

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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