oil and the area economy
TRANSCRIPT
Financiële economie II Deel 2 Monetaire economie en monetaire
politiekOil and the Euro Area EconomyOil and the Euro Area Economy
Gert Peersman
•
oil price fluctuations
in recent times –
From $16 a barrel in 1999 to $147 by the middle of 2008, back to
$35
and exact oil transmission mechanism, especially for Euro area
and its member countries
0
20
40
60
80
100
120
140
160
in the
Euro area (EA) and United States (US) –
Not all oil shocks are alike: measuring the impact depending on
the underlying source of the oil price shift
–
Consequences and appropriate policy reaction is very likely to be different for e.g. oil price shifts due to supply disruptions or
changes in oil demand driven by economic activity
•
to inflation –
•
Explain asymmetries
important role of differences in labour market characteristics
1.Macroeconomic effects of oil shocks1.Macroeconomic effects of oil shocks •
Estimation of an SVAR
•
•
–
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
–
–
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
–
–
Oilspecific demand shocks
speculative oil demand)
Oil supply
•
–
–
Oilspecific demand shocks (e.g. shifts in precautionary or
speculative oil demand) –
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
Impact of a 10% oil price shock in the Euro area Consumer
prices Output Interest rate Exchange rate
Oil supply
•
Impact of a 10% oil price shock in the Euro area Consumer
prices Output Interest rate Exchange rate
Oil supply
•
Similar differences between three types of shocks •
We notice a monetary policy
reaction more in line with
–
of oil supply shocks to consumer prices and economic activity
Consumer prices
real GDP
Euro area United States
–
Estimate the impact of oil supply shocks on additional variables to measure different channels of passthrough
1.1.Macroeconomic effects of oil shocksMacroeconomic effects of oil shocks
Variance
–
Zt
: additional variable of interest to capture a specific channel or effect –
Results are robust when B(L)=0
•
( ) ( ) ( ) ( )
+
+=
−
−
Direct effects –
Oil supply shock has a direct effect on consumer prices because
oil (energy) is part of the index –
If only direct effects are relevant, core CPI should not react
Consumer prices
CPI-energy
0,0
1,0
2,0
3,0
4,0
Core CPI
Euro area United States
Cost effects –
Production costs of firms increase, which are passed on to prices
of nonenergy goods and services –
For oilimporting countries: should only affect the import
deflator and not the GDP deflator (domestic value added)
Core CPI
Import deflator
GDP deflator
Euro area United States
GDP deflator positively affected by secondround effects •
–
GDP deflator negatively influenced by a fall in aggregate demand
(see later)
GDP deflator
Price-wage ratio
Real consumer wages
Nominal wages
Euro area United States
–
EA:
•
Is in line with tax literature (e.g. Daveri and Tabellini 1997)
2.2.PassPassthrough to inflationthrough to inflation
2.2.PassPassthrough to inflationthrough to inflation •
Demand effects and impact on economic activity –
Income effects: less disposable income for other goods and
services –
–
real GDP
Consumption
-0,6
-0,4
-0,2
0,0
0,2
0,4
Investment
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Nominal interest rate
Euro area United States
( ) ( ) ( ) ( )
+
+=
−
−
–
Netherlands, Portugal and Spain
3.Impact in individual EA3.Impact in individual EAcountriescountries •
Longrun impact of a 10% oil supply shock –
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
Netherlands, Portugal and Spain
Impact on real GDP
–
Positive correlation
•
More limited output losses for countries with stronger price increase
Corr = 0.57
Reaction of CPIenergy
AT
In particular secondround and demand effects (not cost effects)
AT
Impact on core CPI
Impact on GDP deflator
pa ct
o n
C PI
Corr = 0.13
•
Wage reaction
No significant reaction in Austria, Finland, France, Ireland and
the Netherlands –
impact on CPI
(and GDP deflator)
Impact on nominal wages
–
Paper provides additional sectoral evidence of wages being source of asymmetric price responses
3.Impact in individual EA3.Impact in individual EAcountriescountries
AT
FI
FR
DE
IT
NL
Impact on nominal wages
Wage reaction can be related to labour market characteristics
•
•
–
–
AT
FI
FR
DE
GR
OECD EPL
Im pa
ct o
n G
D P
-d ef
la to
NL
ES
AT
BE
IR
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
0.0 1.0 2.0 3.0 4.0
OECD EPL
Im pa
ct o
n no
m in
al w
ag es
•
Crosscountry differences of impact on output are dominated by
demand effects, in particular monetary policy effects –
“One monetary policy stance which does not fit all” must be a
crucial explanation •
•
•
•
and their respective deflators
between ultimate impact on output and prices across countries
•
Positive correlation disappears (and becomes negative) in the absence of a monetary policy reaction
3.Impact in individual EA3.Impact in individual EAcountriescountries
ConclusionsConclusions •
impact (especially on economic
•
–
–
–
Different labour market
–
stance which does not fit all
Oil and the Euro Area Economy
Motivation
Slide Number 5
Slide Number 6
Slide Number 7
Slide Number 8
Slide Number 9
Slide Number 10
Slide Number 11
2.Pass-through to inflation
2.Pass-through to inflation
Slide Number 14
Slide Number 15
2.Pass-through to inflation
Gert Peersman
•
oil price fluctuations
in recent times –
From $16 a barrel in 1999 to $147 by the middle of 2008, back to
$35
and exact oil transmission mechanism, especially for Euro area
and its member countries
0
20
40
60
80
100
120
140
160
in the
Euro area (EA) and United States (US) –
Not all oil shocks are alike: measuring the impact depending on
the underlying source of the oil price shift
–
Consequences and appropriate policy reaction is very likely to be different for e.g. oil price shifts due to supply disruptions or
changes in oil demand driven by economic activity
•
to inflation –
•
Explain asymmetries
important role of differences in labour market characteristics
1.Macroeconomic effects of oil shocks1.Macroeconomic effects of oil shocks •
Estimation of an SVAR
•
•
–
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
–
–
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
–
–
Oilspecific demand shocks
speculative oil demand)
Oil supply
•
–
–
Oilspecific demand shocks (e.g. shifts in precautionary or
speculative oil demand) –
Qoil Poil Ywd YEA PEA iEA €/$
Oil supply
•
Impact of a 10% oil price shock in the Euro area Consumer
prices Output Interest rate Exchange rate
Oil supply
•
Impact of a 10% oil price shock in the Euro area Consumer
prices Output Interest rate Exchange rate
Oil supply
•
Similar differences between three types of shocks •
We notice a monetary policy
reaction more in line with
–
of oil supply shocks to consumer prices and economic activity
Consumer prices
real GDP
Euro area United States
–
Estimate the impact of oil supply shocks on additional variables to measure different channels of passthrough
1.1.Macroeconomic effects of oil shocksMacroeconomic effects of oil shocks
Variance
–
Zt
: additional variable of interest to capture a specific channel or effect –
Results are robust when B(L)=0
•
( ) ( ) ( ) ( )
+
+=
−
−
Direct effects –
Oil supply shock has a direct effect on consumer prices because
oil (energy) is part of the index –
If only direct effects are relevant, core CPI should not react
Consumer prices
CPI-energy
0,0
1,0
2,0
3,0
4,0
Core CPI
Euro area United States
Cost effects –
Production costs of firms increase, which are passed on to prices
of nonenergy goods and services –
For oilimporting countries: should only affect the import
deflator and not the GDP deflator (domestic value added)
Core CPI
Import deflator
GDP deflator
Euro area United States
GDP deflator positively affected by secondround effects •
–
GDP deflator negatively influenced by a fall in aggregate demand
(see later)
GDP deflator
Price-wage ratio
Real consumer wages
Nominal wages
Euro area United States
–
EA:
•
Is in line with tax literature (e.g. Daveri and Tabellini 1997)
2.2.PassPassthrough to inflationthrough to inflation
2.2.PassPassthrough to inflationthrough to inflation •
Demand effects and impact on economic activity –
Income effects: less disposable income for other goods and
services –
–
real GDP
Consumption
-0,6
-0,4
-0,2
0,0
0,2
0,4
Investment
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Nominal interest rate
Euro area United States
( ) ( ) ( ) ( )
+
+=
−
−
–
Netherlands, Portugal and Spain
3.Impact in individual EA3.Impact in individual EAcountriescountries •
Longrun impact of a 10% oil supply shock –
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
Netherlands, Portugal and Spain
Impact on real GDP
–
Positive correlation
•
More limited output losses for countries with stronger price increase
Corr = 0.57
Reaction of CPIenergy
AT
In particular secondround and demand effects (not cost effects)
AT
Impact on core CPI
Impact on GDP deflator
pa ct
o n
C PI
Corr = 0.13
•
Wage reaction
No significant reaction in Austria, Finland, France, Ireland and
the Netherlands –
impact on CPI
(and GDP deflator)
Impact on nominal wages
–
Paper provides additional sectoral evidence of wages being source of asymmetric price responses
3.Impact in individual EA3.Impact in individual EAcountriescountries
AT
FI
FR
DE
IT
NL
Impact on nominal wages
Wage reaction can be related to labour market characteristics
•
•
–
–
AT
FI
FR
DE
GR
OECD EPL
Im pa
ct o
n G
D P
-d ef
la to
NL
ES
AT
BE
IR
-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
0.0 1.0 2.0 3.0 4.0
OECD EPL
Im pa
ct o
n no
m in
al w
ag es
•
Crosscountry differences of impact on output are dominated by
demand effects, in particular monetary policy effects –
“One monetary policy stance which does not fit all” must be a
crucial explanation •
•
•
•
and their respective deflators
between ultimate impact on output and prices across countries
•
Positive correlation disappears (and becomes negative) in the absence of a monetary policy reaction
3.Impact in individual EA3.Impact in individual EAcountriescountries
ConclusionsConclusions •
impact (especially on economic
•
–
–
–
Different labour market
–
stance which does not fit all
Oil and the Euro Area Economy
Motivation
Slide Number 5
Slide Number 6
Slide Number 7
Slide Number 8
Slide Number 9
Slide Number 10
Slide Number 11
2.Pass-through to inflation
2.Pass-through to inflation
Slide Number 14
Slide Number 15
2.Pass-through to inflation