Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us

By Christiane Baumeister, Lutz Kilian. Social Science Research Network, 2016

529 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/1483f706a43c43f9b3d7ac087f096573f77be970

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Citations in the corpus

The impact of oil-market shocks on stock returns in major oil-exporting countries (2018, background): “3 See the reply by Hamilton (2011).”
Measuring energy poverty in Japan, 2004–2013 (2016, background): “The figure depicts the gradual decrease in 9 For the change in international energy prices to the latest, see, e.g., Baumeister and Kilian (2016). household income, as well as a sharp decline after 2008 and the global financial crisis, and a small recovery after 2012.”
The Impact of the Fracking Boom on Arab Oil Producers (2016, background): “The estimates confirm that all three shocks contributed to the decline in the real price of oil since June 2014 rather than the oil supply shock alone, which is broadly consistent with the conclusions of Baumeister and Kilian (2016b) using an alternative methodology.11”
Oil price elasticities and oil price fluctuations (2016, unknown): “(28)The gap between the vertical bars and the black line in the upper-left panel of figure 9 shows that about 30 percent of the decline in oil prices was actually predictable, as it reflected the cumulative effects of earlier shocks, slightly smaller than the 50 percent value found by Baumeister and”
Lower Oil Prices and the U.S. Economy: Is This Time Different? (2017, unknown): “Recent work by Baumeister and Kilian (2016a) suggests that what matters when quantifying gasoline price shocks is the expectation of the decision maker whose behavior we seek to understand.”
From financial instability to green finance: the role of banking and credit market regulation in the Eurace model (2019, background): “These forecasts are very different from each other, even in the long term, thus highlighting the intrinsic difficulty in correctly predicting future oil price fluctuations, see e.g. Baumeister and Kilian (2016).”