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Title: Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions

Author(s): Francesco Lippi and Andrea Nobili

Publication Date: May 2008

Keyword(s): Business cycle, Oil prices, Sign Restrictions and Structural VAR

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Lippi, F and Nobili, A. 2008. 'Oil and the Macroeconomy: A Structural VAR Analysis with Sign Restrictions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6830