Causes and consequences of oil price shocks on the UK economy

Lorusso, Marco; Pieroni, Luca

doi:10.1016/j.econmod.2018.01.018

Cited by 68 publications

(62 citation statements)

References 48 publications

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“…Perifanis and Dagoumas [4] propose the positive contribution of demand to prices. Lorusso and Pieroni [78] find that political events and consequential supply shocks did not affect prices since the mid-1970 s. This role was played by the precautionary oil demand swifts, which are the main contributors to oil price formulation. Liu et al [79] suggest that the Chinese and the US demand are the oil price drivers.…”

Section: Pwy (2011)mentioning

confidence: 98%

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Perifanis¹

2019

Energies

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Oil prices have had considerable surges and bursts since the first oil crisis of 1973. Until then its price was stable, with almost zero volatility. Since then, apart from the two oil crises of 1973 and 1978/9, oil prices had consecutive bubble episodes like the surges up to 2008 and 2014 and their successive bursts, respectively. The trace of these bubble periods is of crucial importance for policymakers, since their drivers and consequences impact global economic developments. Phillips et al. and Phillips et al. methodologies are applied to detect whether West Texas Intermediate prices experienced bubble periods. Both methodologies suggest that WTI prices experienced explosive episodes, which could be fundamentally, speculatively, or politically attributed. Some suggested periods coincide for both methods, but the second methodology seems to be more sensitive than its predecessor is, leading to better bubble detection but also to identification of non-existent bubbles. The identified bubble periods are compared to relevant research in the literature concerning their presence, duration, and explosiveness. The main goal of the research, apart from the detection of bubbles’ presence and duration, is to identify the causal underlying reasons for each explosive episode. Further, we compare the start and endpoints of each bubble episode with time-points when structural changes occurred. The contribution of the paper is that it clearly defines the bubble episodes with their corresponding drivers. The paper identifies the importance of market fundamentals’ swifts in explaining the bubble periods. The findings of the papers can help policymakers and other stakeholders to monitor oil price shifts and their underlying reasons, and then proceed with prompt actions. Since bubble episodes are fundamentally explained, then the practical utility is that by focusing on the market fundamentals, stakeholders can avoid actions that could result in market failures.

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Section: Pwy (2011)mentioning

confidence: 98%

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Perifanis¹

2019

Energies

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“…In this regard, Lorusso and Pieroni (2018) have argued that the increase in the oil price between 2009-2014 was mainly associated with a strong precautionary demand for oil.…”

Section: Accepted Manuscriptmentioning

confidence: 99%

Oil prices, fundamentals and expectations

Byrne

Lorusso

2019

Energy Economics

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This paper empirically investigates the relationship between oil prices, traditional fundamentals and expectations. Informational frictions may force a wedge between oil prices and supply and/or demand shocks, especially during periods of elevated risk aversion and uncertainty. In such a context, expectations can be a key driver of oil price movements and their impact can vary over time. Overall, we find that both traditional oil fundamentals and forward-looking expectations matter for oil prices. Our findings show that the real price of oil responds differently to expectations shocks of business leaders, consumers and aggregate markets. Our TVP-VAR approach provides evidence that business leaders' expectations play an important role in terms of oil price fluctuations and the impact is stronger in periods of elevated global oil demand. In terms of traditional oil market fundamentals, we find that oil prices have been significantly affected by the recent US shale oil boom. Moreover, global oil demand had a positive impact upon oil prices, especially from the mid-2000's. Several alternative model specifications prove the robustness of our analysis.

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“…While we can see that monetary policy is tightened to stabilize inflation after the iron ore supply shock (Figure b), the policy rate is reduced in line with the reaction of output contraction after the oil supply shock (Figure a). Similar evidence that policy interest rates are reduced in response to a negative oil supply shock is also found in energy‐exporting countries such as Canada, the United Kingdom and the United States (Kilian & Lewis, ; Lorusso & Pieroni, ). However, Peersman and Van Robays () find that monetary policy is significantly tightened to stabilize inflation in oil‐importing countries.…”

Section: Resultsmentioning

confidence: 56%

“…interest rates are reduced in response to a negative oil supply shock is also found in energy-exporting countries such as Canada, the United Kingdom and the United States (Kilian & Lewis, 2011;Lorusso & Pieroni, 2015). However, Peersman and Van Robays (2012) find that monetary policy is significantly tightened to stabilize inflation in oil-importing countries.…”

Section: (Ii) Economic Effects Of Oil and Iron Ore Supply Shocksmentioning

confidence: 95%

Oil and Iron Ore Price Shocks: What Are the Different Economic Effects in Australia?

Hoang

Nguyen

2018

Economic Record

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This paper compares the macroeconomic effects of global oil and iron ore price shocks on the Australian economy. Using a Bayesian structural vector autoregression model with sign restrictions, we identify three types of shock: supply, demand and specific demand. The main results suggest that, over the period from 1990Q1 to 2014Q4, the oil shock had a relative larger impact than the iron ore shock on output and inflation, while the iron ore shock was the dominant source of interest and exchange rate movements. The effects crucially depend on the underlying sources of oil or iron ore price shifts. As Australia is a small open economy, oil and iron ore prices should be treated as exogenous factors. Real GDP responds negatively to a rise in oil prices driven by supply disruptions, but positively to a similar shock on the iron ore market. Higher global demand for these commodities has a positive impact on the economy, but the iron ore demand shock is about twice larger. However, a positive oil and iron ore price shock driven by specific demand lead to a temporary decline in real GDP.

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Causes and consequences of oil price shocks on the UK economy

Cited by 68 publications

References 48 publications

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Detecting West Texas Intermediate (WTI) Prices’ Bubble Periods

Oil prices, fundamentals and expectations

Oil and Iron Ore Price Shocks: What Are the Different Economic Effects in Australia?

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