The Time Varying Effect of Oil Price Shocks on Euro-Area Exports

53 Pages Posted: 12 Feb 2016

Date Written: September 22, 2015

Abstract

In this paper we provide novel evidence on changes in the relationship between the real price of oil and real exports in the euro area. By combining robust predictions on the sign of the impulse responses obtained from a theoretical model with restrictions on the slope of the oil demand and oil supply curves, we identify oil supply and foreign productivity shocks in a time varying VAR with stochastic volatility. We find that from the 1980s onward the relationship between oil prices and euro area exports has become less negative conditional on oil supply shortfalls and more positive conditional on foreign productivity shocks. Using the theoretical model we show that our empirical findings can be accounted for by:

(i) stronger trade relationship between the euro area and emerging economies,

(ii) a decrease in the share of oil in production and,

(iii) increased competitive pressures in the product market.

Keywords: oil prices, VAR, time-varying parameters, exports

JEL Classification: C32, E3, F14

Suggested Citation

Riggi, Marianna and Venditti, Fabrizio, The Time Varying Effect of Oil Price Shocks on Euro-Area Exports (September 22, 2015). Bank of Italy Temi di Discussione (Working Paper) No. 1035. Available at SSRN: https://ssrn.com/abstract=2731677 or http://dx.doi.org/10.2139/ssrn.2731677

Marianna Riggi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Fabrizio Venditti

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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