Typology Of Oil Shocks: Why 2004 Is Different
Author(s)
J.-L. Bertrand & S. Justeau
Abstract
A sudden increase in the price of oil is unavoidably associated with the word
\“shock”. Considerable research has shown that an increase in the price of oil
reduces output and boosts inflation. This is evidently true for the previous oil
crises, but when it comes to the recent upturn in the price of oil, inflation remains
under control in developed countries and the world surprisingly continues to
grow at a highly respectable pace. The same cause no longer leads to the same
consequences. Since very few papers have defined what the main characteristics
of a true shock are, it has therefore become of key importance to step back and
analyse previous oil crises to better understand the current situation and evaluate
what is likely to happen in the coming years.
The first section of this paper reviews previous oil crises to establish a grid of
characteristics and determine whether the recent upturn in oil markets can be
viewed as a genuine oil shock. We will observe that 2004 is evidently different
from previous oil shocks.
In the second section we will try to understand why today the world does not
behave as economics tell us. We will evidence the decreased level of dependency
of major economies to oil and show using a VAR model that a redistribution of
wealth is in fact offsetting the classic shortfalls of past oil shocks.
Keywords: oil shock, economics of exhaustible resource, oil proceeds
redistribution
1 Introduction
Oil has increasingly been a focus of attention since 2004. The price of the West
Texas Intermediate (WTI) which is a type of crude oil commonly used as
Keywords
oil shock, economics of exhaustible resource, oil proceeds
redistribution
Related Book
Other papers in this volume
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