Oil Shocks and External Adjustment
By Martin Bodenstein, C. Erceg, Luca Guerrieri. 2007
297 citations recorded by the source corpus.
This paper investigates how oil price shocks affect the trade balance and terms of trade in a two country DSGE model. We show that the response of the external sector depends critically on the structure of financial market risk-sharing. Under incomplete markets, higher oil prices reduce the relative wealth of an oil-importing country, and induce its nonoil terms of trade to deteriorate, and its nonoil trade balance to improve. The magnitude of the nonoil terms of trade response hinges on structural parameters that affect the divergence in wealth effects across oil importers and exporters, including the elasticity of substitution between oil and other inputs in production, and the discount factor. By contrast, cross-country wealth differences effectively disappear under complete markets, with the implication that oil shocks have essentially no effect on the nonoil terms of trade or the nonoil trade balance.
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/b22fe800ddd9f5ce86d4cf4970e5aa808bced0ab
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Citations in the corpus
- The impact of oil shocks on exchange rates: A Markov-switching approach (2016, background): “(2009), and Bodenstein et al. (2011). The empirical literature on the relationship between oil prices and exchange rate has evolved along multiple directions.”
- Global Exchange Rate Configurations: Do Oil Shocks Matter? (2016, unknown): “ = + + ()−1 + () + ()b ∗ + + (6) where is a variable of interest in country , is a time dummy, is a structural characteristic of the country, namely (i) the lagged (in order to avoid simultaneity) country’s oil trade balance and estimated commodity t”
- Oil, Gold, US dollar and Stock market interdependencies: A global analytical insight (2017, background): “The total effects confirm the negative and significant effects of crude oil price, gold price and stock market prices (bodenstein et al. 2011, and Jean-Pierre Allerget, 2014), and effects of the other additional controls.”
- Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market (2009, unknown): “work by Bodenstein, Erceg, and Guerrieri (2007) on oil shocks and external adjustment.”
- Adverse effects of rising interest rates on sustainable energy transitions (2019, background): “Not only do shocks of the IR affect commodity prices, but exogenous shocks of commodity prices also affect the economic activity and due to market interactions the IR as well 41 .”
- Oil and the Macroeconomy: A Quantitative Structural Analysis (2012, unknown): “17See the recent papers by Bodenstein et al. (2007) and Nakov and Pescatori (2010) for more models where, like in ours, the price of oil is endogenous.”
- Oil price shocks and trade imbalances (2013, background): “However, it is argued that the nature of financial market risk sharingmay havemajor implications for the responses of external balances to the permanent oil price shock (Bodenstein et al., 2011).”
- Monetary Policy Responses to Oil Price Fluctuations (2012, background): “s=0 βs1 (1− ξp1β1) (1− ξp1) ξp1 Etm̂c1,t+s, (9)”
- Oil Prices, Exchange Rates and Interest Rates (2019, background): “5 A notable exception is the theoretical analysis in Bodenstein et al. (2011) which addresses the latter two concerns, but only in the context of a model of the value of the U.”
- Quantitative Effects of the Shale Oil Revolution (2015, unknown): “Recent examples include Backus and Crucini (2000), Blanchard and Gali (2010), Bodenstein et al. (2011, 2012), Bodenstein and Guerrieri (2011), DeMiguel and Manzano (2006), Leduc and Sill (2007), and Nakov and Pescatori (2010a,b).”