Working Paper: NBER ID: w15791
Authors: Ichiro Fukunaga; Naohisa Hirakata; Nao Sudo
Abstract: In this paper, we decompose oil price changes into their component parts following Kilian (2009) and estimate the dynamic effects of each component on industry-level production and prices in the U.S. and Japan using identified VAR models. The way oil price changes affect each industry depends on what kind of underlying shock drives oil price changes as well as on industry characteristics. Unexpected disruptions of oil supply act mainly as negative supply shocks for oil-intensive industries and act mainly as negative demand shocks for less oil-intensive industries. For most industries in the U.S., shocks to the global demand for all industrial commodities act mainly as positive demand shocks, and demand shocks that are specific to the global oil market act mainly as negative supply shocks. In Japan, the oil-specific demand shocks as well as the global demand shocks act mainly as positive demand shocks for many industries.
Keywords: oil price changes; industry-level production; prices; US; Japan
JEL Codes: E30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| oil supply shocks (Q43) | decrease in production in oil-intensive industries (L71) |
| oil supply shocks (Q43) | negative demand shocks for less oil-intensive industries (L16) |
| global demand shocks (F69) | increase in production for most industries in the US (O51) |
| oil-specific demand shocks (Q43) | negative supply shocks (E31) |
| oil-specific demand shocks (Q43) | positive demand shocks for many industries in Japan (F69) |
| global demand shocks (F69) | positive demand shocks for many industries in Japan (F69) |
| oil supply shocks (Q43) | weaker negative responses in Japan (F69) |
| global demand shocks (F69) | stronger positive responses in Japan (F69) |