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Commodity Prices and Markets$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2011

Print ISBN-13: 9780226386898

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226386904.001.0001

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The Effects of Oil Price Changes on the Industry-Level Production and Prices in the United States and Japan

The Effects of Oil Price Changes on the Industry-Level Production and Prices in the United States and Japan

Chapter:
(p.195) 6 The Effects of Oil Price Changes on the Industry-Level Production and Prices in the United States and Japan
Source:
Commodity Prices and Markets
Author(s):

Fukunaga Ichiro

Naohisa Hirakata

Nao Sudo

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226386904.003.0007

This chapter investigates the underlying causes of oil price changes and their transmission mechanisms in the United States and Japan. The oil price changes are decomposed into their component parts and the dynamic effects of each component on industry-level production and prices in both countries is estimated using identified vector autoregression models. The models incorporate two major extensions to the standard models. Instead of treating oil price changes as exogenous shocks, the underlying demand and supply shocks to the global oil market are identified. The positive response of production to the oil-specific demand shock might be the result of global demand shifts, especially in automobiles, toward more oil-efficient products made in Japan. Estimation results for the domestic macroeconomy blocks for the United States and Japan are discussed. Transmission mechanisms of oil price changes are surveyed and the estimation results are interpreted in more detail.

Keywords:   oil price changes, vector autoregression models, global oil market, macroeconomy, global demand shifts

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