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American Economic Review Vol. 109 No. 5 2019

Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks

Christiane Baumeister1; James D. Hamilton2

1 Department of Economics, University of Notre Dame, 3028 Jenkins Nanovic Hall, Notre Dame, IN 46556 (email: ) · 2 Department of Economics, University of California at San Diego, 9500 Gilman Dr., La Jolla, CA 92093 (email: )

Abstract

Traditional approaches to structural vector autoregressions (VARs) can be viewed as special cases of Bayesian inference arising from very strong prior beliefs. These methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves. We use this approach to revisit the importance of shocks to oil supply and demand. Supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates. Supply shocks lead to a reduction in global economic activity after a significant lag, whereas shocks to oil demand do not.

DOI
10.1257/aer.20151569
Volume
109
Issue
5
Pages
1873-1910
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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