The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements

2021/03/30 by Diego R. Känzig · 425 citations
Economics, Econometrics and Finance · #Economics #Energy, Environment, Economic Growth #Exchange rate #Finance #Inflation (cosmology) #Liberian dollar #Macroeconomics #Market Dynamics and Volatility #Monetary Policy and Economic Impact #Monetary economics #Monetary policy #Oil price #Oil supply #Production (economics) #Shock (circulatory) #Supply shock #Us dollar #Vector autoregression

paper · doi:10.1257/aer.20190964

published in American Economic Review 111(4), 1092-1125 (American Economic Association)

openalex publication_date 2021/03/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04

Abstract

This paper studies how changes in oil supply expectations affect the oil price and the macroeconomy. Using a novel identification design, exploiting institutional features of OPEC and high-frequency data, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production, and an increase in inventories. This has consequences for the US economy: activity falls, prices and inflation expectations rise, and the dollar depreciates, providing evidence for a strong channel operating through supply expectations. (JEL E31, E32, F31, Q35, Q38, Q43)

Citations

• Estimation and Inference of Impulse Responses by Local Projections
• The Impact of Uncertainty Shocks
• Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks

Cited by

• Supply and demand components of Philippine inflation, 2001–2024
• Complete Pass-Through in Levels
• Are Inflationary Shocks Regressive? A Feasible Set Approach
• Gas supply shocks, uncertainty and price setting: evidence from Italian firms
• Burn now or never? Climate policy exposure and investment of fossil fuel firms
• The causal effects of commodity shocks
• Bootstrap Diagnostic Tests
• Becoming Green: Decomposing the Macroeconomic Effects of Green Technology News Shocks
• Geopolitical shocks and commodity market dynamics: New evidence from the Russia-Ukraine conflict
• Who's at Risk? Effects of Inflation on Unemployment Risk
• Oil price shocks and China's consumer and entrepreneur sentiment: a Bayesian structural VAR approach. [europepmc]
• On the relationship between oil market and European stock returns. [europepmc]
• Do carbon policy shocks move stocks? evidence from China's carbon market. [europepmc]
• Effects and Intermediate Transmissions of Oil Price Shocks on Major Economies [europepmc]

Related

• Business Cycles and the Oil Market
• Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market
• Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?
• THE IMPACT OF OIL PRICE SHOCKS ON THE U.S. STOCK MARKET*
• Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us