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Working Paper
Fuel subsidies, the oil market and the world economy
Plante, Michael D.; Balke, Nathan S.; Yücel, Mine K. (2014-08-01)
This paper studies the e ffects of oil producing countries' fuel subsidies on the oil market and the world economy. We identify 24 oil producing countries with fuel subsidies where retail fuel prices are about 34 percent of the world price. We construct a two-country model where one country represents the oil-exporting subsidizers and the second the oil-importing bloc, and calibrate the model to match recent data. We find that the removal of subsidies would reduce the world price of oil by six percent. The removal of subsidies is unambiguously welfare enhancing for the oil-importing ...
Working Papers , Paper 1407

Working Paper
Oil Curse, Economic Growth and Trade Openness
Vespignani, Joaquin L.; Raghavan, Mala; Majumder, Monoj Kumar (2019-10-01)
An important economic paradox that frequently arises in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the ?resource curse,? is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resource abundance for the period 1980?2017. In addition, the study examines the role of trade openness in influencing the relationship between oil ...
Globalization Institute Working Papers , Paper 370

Working Paper
Oil Price Fluctuations, US Banks, and Macroprudential Policy
Gelain, Paolo; Lorusso, Marco (2024-10-23)
Using US micro-level data on banks, we document a negative effect of high oil prices on US banks' balance sheets, more negative for highly leveraged banks. We set and estimate a general equilibrium model with banking and oil sectors that rationalizes those findings through the financial accelerator mechanism. This mechanism amplifies the effect of oil price shocks, making them non-negligible drivers of the dynamics of US banks' intermediation activity and of the US real economy. Macroprudential policy, in the form of a countercyclical capital buffer, can meaningfully address oil price ...
Working Papers , Paper 22-33R

Working Paper
Facts and Fiction in Oil Market Modeling
Kilian, Lutz (2020-12-21)
A series of recent articles has called into question the validity of VAR models of the global market for crude oil. These studies seek to replace existing oil market models by structural VAR models of their own based on different data, different identifying assumptions, and a different econometric approach. Their main aim has been to revise the consensus in the literature that oil demand shocks are a more important determinant of oil price fluctuations than oil supply shocks. Substantial progress has been made in recent years in sorting out the pros and cons of the underlying econometric ...
Working Papers , Paper 1907

Working Paper
OPEC in the News
Plante, Michael D. (2018-02-01)
This paper introduces a newspaper article count index related to OPEC that rises in response to important OPEC meetings and events connected with OPEC production levels. I use this index to measure how interest in OPEC varies over time and investigate how oil price volatility behaves when the index unexpectedly changes. I find that unexpected increases in the newspaper index are strongly associated with higher levels of oil price volatility, both realized and implied. In some cases, interest levels and price volatility appear to be driven by the OPEC event itself, such as the Iraq invasion of ...
Working Papers , Paper 1802

Working Paper
The U.S. Shale Oil Boom, the Oil Export Ban, and the Economy: A General Equilibrium Analysis Nida
Plante, Michael D.; Cakir Melek, Nida; Yücel, Mine K. (2017-09-01)
This paper examines the e ects of the U.S. shale oil boom in a two-country DSGE model where countries produce crude oil, re ned oil products, and a non-oil good. The model in- {{p}} corporates di erent types of crude oil that are imperfect substitutes for each other as inputs into the re ning sector. The model is calibrated to match oil market and macroeconomic data for the U.S. and the rest of the world (ROW). {{p}} We investigate the implications of a signicant {{p}} increase in U.S. light crude oil production similar to the shale oil boom. Consistent with the data, our model predicts that ...
Research Working Paper , Paper RWP 17-10

Working Paper
Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production
Ratti, Ronald A.; Vespignani, Joaquin L.; Kang, Wensheng (2017-01-01)
Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges ...
Globalization Institute Working Papers , Paper 295

Working Paper
Oil Prices and Consumption across Countries and U.S. States
De Michelis, Andrea; Ferreira, Thiago Revil T.; Iacoviello, Matteo (2019-11-07)
We study the effects of oil prices on consumption across countries and U.S. states, by exploiting the time-series and cross-sectional variation in oil dependency of these economies. We build two large datasets: one with 55 countries over the years 1975-2018, and another with all U.S. states over the period 1989-2018. We then show that oil price declines generate positive effects on consumption in oil-importing economies, while depressing consumption in oil-exporting economies. We also document that oil price increases do more harm than the good afforded by oil price decreases both in the ...
International Finance Discussion Papers , Paper 1263

Working Paper
Oil Price Elasticities and Oil Price Fluctuations
Caldara, Dario; Iacoviello, Matteo; Cavallo, Michele (2016-07)
We study the identification of oil shocks in a structural vector autoregressive (SVAR) model of the oil market. First, we show that the cross-equation restrictions of a SVAR impose a nonlinear relation between the short-run price elasticities of oil supply and oil demand. This relation implies that seemingly plausible restrictions on oil supply elasticity may map into implausible values of the oil demand elasticity, and vice versa. Second, we propose an identification scheme that restricts these elasticities by minimizing the distance between the elasticities allowed by the SVAR and target ...
International Finance Discussion Papers , Paper 1173

Working Paper
Geopolitical Oil Price Risk and Economic Fluctuations
Richter, Alexander W.; Kilian, Lutz; Plante, Michael D. (2024-11-12)
This paper studies the general equilibrium effects of time-varying geopolitical risk in the oil market by simultaneously modeling downside risk from disasters, oil storage and the endogenous determination of oil price and macroeconomic uncertainty in the global economy. Notwithstanding the attention geopolitical events in oil markets have attracted, we find that geopolitical oil price risk is not a major driver of global macroeconomic fluctuations. Even when allowing for the possibility of an unprecedented 20 percent drop in global oil production, it takes a large increase in the probability ...
Working Papers , Paper 2403

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