Working Paper: NBER ID: w20857
Authors: Rabah Arezki; Valerie A. Ramey; Liugang Sheng
Abstract: This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output–the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time.
Keywords: news shocks; oil discoveries; current account; macroeconomic variables
JEL Codes: E00; F32; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Giant oil discoveries (L71) | Current account decline (F32) |
| Giant oil discoveries (L71) | Saving rate decline (E21) |
| Giant oil discoveries (L71) | Increased investment (E22) |
| Giant oil discoveries (L71) | GDP increase (O49) |
| Giant oil discoveries (L71) | Employment rate decline (J63) |
| Giant oil discoveries (L71) | Positive current account effect (F32) |
| Giant oil discoveries (L71) | Saving increase (E21) |
| Giant oil discoveries (L71) | Investment decline (G31) |
| Giant oil discoveries (L71) | Private investment-to-GDP ratio increase (E22) |
| Giant oil discoveries (L71) | Public investment-to-GDP ratio decline (H54) |