Working Paper: CEPR ID: DP11035
Authors: Christiane Baumeister; Lutz Kilian
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 expectations; oil price shock; peak oil; unconventional oil
JEL Codes: C53; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| oil price shocks (Q43) | economic behavior (D22) |
| global crude oil production shifts (L71) | oil price shocks (Q43) |
| demand shocks (E39) | oil price shocks (Q43) |
| inventory demand (L81) | oil price shocks (Q43) |
| expectations about future supply and demand (D84) | oil price (L71) |
| unexpected demand shifts (J23) | price changes (P22) |
| oil price expectations (Q47) | timing and magnitude of oil price shocks (Q43) |