Working Paper: CEPR ID: DP6830
Authors: Francesco Lippi; Andrea Nobili
Abstract: We consider an economy where the oil price, industrial production, and other macroeconomic variables fluctuate in response to a variety of fundamental shocks. We estimate the effects of different structural shocks using robust sign restrictions suggested by theory using US data for the 1973-2007 period. The estimates show that identifying the shock underlying the oil price change is important to predict the sign and the magnitude of its correlates with the US production. The results offer a natural explanation for the smaller correlation between oil prices and US production in the recent years compared to the seventies.
Keywords: business cycle; oil prices; sign restrictions; structural VAR
JEL Codes: C32; E3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative oil supply shock (Q43) | US industrial production (L69) |
| positive oil demand shock (Q43) | US industrial production (L69) |
| negative oil supply shock (Q43) | oil prices (L71) |
| positive oil demand shock (Q43) | oil prices (L71) |