impacts of opec s political risk on the international crude oil prices an empirical analysis based on the svar models abstract the impacts of opec s political risk on the fluctuations of international crude oil prices have caused widespread concern and analyzing the impacts is of great significance to the investment decisions and risk aversion strategies in the crude oil markets therefore using the international country risk guide icrg index as a proxy for the countries political risk situation we empirically investigate the impacts of opec s political risk on the brent crude oil prices based on several structural vector autoregression svar models the main empirical results indicate that 1 the political risk of opec countries does have a significant and positive influence on brent crude oil prices in the sample period from january 1998 to september 2014 and the most significant positive influences appear in about one and a half year and last about a year 2 opec s integrated political risk contributes to 17 58 of the oil price fluctuations in the sample period which is only lesser than that of the oil demand shocks 34 64 3 compared with the political risk of opec countries in north africa and south america the political risk of opec countries in the middle east contributes most to the oil price fluctuations 4 among the eight components of the political risk in opec the internal conflicts contribute most to the oil price fluctuations in the sample period

the role of market expectations in commodity price dynamics evidence from oil data abstract this paper examines the contribution of market expectations to commodity price dynamics it proposes a dynamic competitive storage framework with an explicit expectations shock along with concurrent shocks to study the commodity price movements this allows for a refined analysis of the expectations effect on price and inventory and the estimation of the expectations applied to the world crude oil market it finds that the contribution of market expectations to the crude oil spot price movements is limited from 1987 to 2014

the effects of oil supply and demand shocks on u s consumer sentiment this paper investigates how the university of michigan s index of consumer sentiment responds to oil price shocks while oil supply shocks play only a limited role the effect of aggregate demand shocks is positive for the first few months and negative thereafter a typical other oil demand shock has a significant negative impact for up to 2 years by studying the responses of individual survey questions we find that expectations of future inflation and a change in real household income as well as perceived vehicle and house buying conditions are the main transmission channels of oil supply and demand shocks

an expected indemnity approach to the measurement of moral hazard in crop insurance a definition of moral hazard in multiple peril crop insurance is proposed that focuses on expected indemnities rather than input use five years of production and insurance data for a panel of kansas wheat farms is used to empirically test for this type of moral hazard results suggest that moral hazard affects multiple peril crop insurance indemnities in poor production years but that no significant moral hazard occurs in years when growing conditions are favorable

influential factors in crude oil price forecasting abstract this paper identifies factors that are influential in forecasting crude oil prices we consider six categories of factors supply demand financial market commodities market speculative and geopolitical and test their significance in the context of estimating various forecasting models we find that the least absolute shrinkage and selection operator lasso regression method provides significant improvements in the forecasting accuracy of prices compared to alternative benchmarks relative to the no change and futures based models lasso forecasts at the 8 step ahead horizon yield significant reductions in mean squared prediction error mspe with mspe ratios of 0 873 and 0 898 respectively we also document substantial improvements in forecasting performance of the factor based model that employs only a subset of variables chosen by lasso finally the time varying nature of the relationship between factors and oil prices is used to explain recent movements in crude oil prices

forty years of oil price fluctuations why the price of oil may still surprise us it has been forty years since the oil crisis of 1973 74 this crisis has been one of the defining economic events of the 1970s and has shaped how many economists think about oil price shocks in recent years a large literature on the economic determinants of oil price fluctuations has emerged drawing on this literature we first provide an overview of the causes of all major oil price fluctuations between 1973 and 2014 we then discuss why oil price fluctuations remain difficult to predict despite economists improved understanding of oil markets unexpected oil price fluctuations are commonly referred to as oil price shocks we document that in practice consumers policymakers financial market participants and economists may have different oil price expectations and that what may be surprising to some need not be equally surprising to others

do exchange rates respond asymmetrically to shocks in the crude oil market abstract the paper argues that exchange rates respond asymmetrically to different shocks to the crude oil market we apply kilian s 2009 methodology to disentangle shocks to the crude oil market into distinct demand and supply shocks and examine the response of the u s real and nominal trade weighted u s dollar exchange rate indexes as well as six other bilateral exchange rates to these shocks our analysis indicates that oil supply shocks have no significant effects on exchange rates while global aggregate demand and oil specific demand shocks lead to depreciations we further show that exchange rates respond asymmetrically to shocks in the crude market depending on whether the shocks are large versus small or positive versus negative

oil prices and the rise and fall of the us real exchange rate abstract questions of the relative importance of real vs monetary shocks in explaining exchange rate movements still have no widely accepted answer despite their importance both for the research agenda and for policy questions we examine this issue using a variety of empirical techniques for the us effective exchange rate we find that a stable link exists between oil price shocks and the us real effective exchange rate over the post bretton woods period the results suggest that oil prices may have been the dominant source of persistent real exchange rate shocks and that energy prices may have important implications for future work on exchange rate behavior

oil shocks and external balances abstract we provide estimates of the effects of demand and supply shocks in the global crude oil market on several measures of oil exporters and oil importers external balances including the oil trade balance the non oil trade balance the current account capital gains and changes in net foreign assets nfa first we show that the effect of oil demand and supply shocks on the merchandise trade balance and the current account which depending on the source of the shock can be large depends critically on the response of the non oil trade balance our results provide evidence of an intermediate degree of international financial integration second we document the presence of large and systematic valuation effects in response to these shocks valuation effects overall tend to cushion the effect of oil demand and supply shocks on the nfa positions of oil exporters and oil importers third we quantify the overall importance of global business cycle demand shocks as well as oil market specific demand and supply shocks for external balances

network competition product quality and market coverage in the presence of network externalities the model identifies the quality of a network product with the number of consumers using it hence the producer cannot unilaterally control the quality of his product using the preference specification of vertical quality differentiation it is shown that the largest network produced will be the most expensive one and used by the richest consumers noncooperative industry structures result in a larger market coverage than cooperative if producers can enter the market freely market coverage with noncompatible networks will be larger however if there is no free entry market coverage is larger with a single industry wide standard copyright 1995 by blackwell publishing ltd

exchange rates of oil exporting countries and global oil price shocks a nonlinear smooth transition approach this paper models logistic and exponential smooth transition adjustments of real exchange rates for six major oil exporting countries in response to different shocks affecting oil prices the logis

vertical product differentiation network externalities and compatibility decisions abstract we analyse the subgame perfect equilibrium of a four stage game in a model of vertical product differentiation where the consumer s evaluation of a product depends on its inherent quality and on its network s size first two firms choose their product s inherent quality then they may mutually agree on providing an adapter before competing in prices finally consumers buy we find that despite the high quality firm s preference for incompatibility an adapter is always provided in equilibrium social welfare is greater than without an adapter and can be improved by regulating compatibility only in those cases where qualities are differentiated too much

the impact of oil shocks on exchange rates a markov switching approach abstract this paper uses markov switching models to investigate the impact of oil shocks on real exchange rates for a sample of oil exporting and oil importing countries this is an important topic to study because an oil shock can affect a country s terms of trade which can affect its competitiveness we detect significant exchange rate appreciation pressures in oil exporting economies after oil demand shocks we find limited evidence that oil supply shocks affect exchange rates global economic demand shocks affect exchange rates in both oil exporting and importing countries though there is no systematic pattern of appreciating and depreciating real exchange rates the results lend support to the presence of regime switching for the effects of oil shocks on real exchange rates

does drawing down the us strategic petroleum reserve help stabilize oil prices we study the effects of releases from the us strategic petroleum reserve spr within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the spr we show that historically spr policy interventions defined as sequences of exogenous spr shocks during selected periods have helped stabilize the price of oil their effect on the price of oil however has been modest for example the cumulative effect of the spr releases after the invasion of kuwait in 1990 was a reduction of 2 per barrel in the real price of oil after 7 months whereas emergency drawdowns tend to lower the real price of oil we find that exchanges tend to raise the real price of oil in the long run we also provide a detailed analysis of the benefits of the 2018 white house proposal to sell off half of the spr within the next decade we show that the expected fiscal benefits of this plan are somewhat higher than the revenue of 16 6 billion dollars projected by the white house

what do we learn from the price of crude oil futures summary despite their widespread use as predictors of the spot price of oil oil futures prices tend to be less accurate in the mean squared prediction error sense than no change forecasts this result is driven by the variability of the futures price about the spot price as captured by the oil futures spread this variability can be explained by the marginal convenience yield of oil inventories using a two country multi period general equilibrium model of the spot and futures markets for crude oil we show that increased uncertainty about future oil supply shortfalls under plausible assumptions causes the spread to decline increased uncertainty also causes precautionary demand for oil to increase resulting in an immediate increase in the real spot price thus the negative of the oil futures spread may be viewed as an indicator of fluctuations in the price of crude oil driven by precautionary demand an empirical analysis of this indicator provides evidence of how shifts in the uncertainty about future oil supply shortfalls affect the real spot price of crude oil copyright 2010 john wiley sons ltd

oil prices and the terms of trade abstract the combination of substantial terms of trade variability and unstable correlation patterns of trade prices with output and trade volumes has led some to suggest a break in the link between trade volumes and prices we find that oil accounts for much of the variation in the terms of trade over the last twenty five years and its quantitative role varies significantly over time and since our dynamic general equilibrium model predicts that the economy responds differently to oil supply shocks than to other shocks changes in their relative importance helps to account for the unstable correlations in the data

automobile insurance ratemaking in the presence of asymmetrical information automobile insurance is an example of a market where multi period contracts are observed this form of contract can be justified by asymmetrical information between the insurer and the insured insurers use risk classification together with bonus malus systems in this paper we show that the actual methodology for the integration of these two approaches can lead to inconsistencies we develop a statistical model that adequately integrates risk classification and experience rating for this purpose we present poisson and negative binomial models with regression component in order to use all available information in the estimation of accident distribution a bonus malus system which integrates a priori and a posteriori information on an individual basis is proposed and insurance premium tables are derived as a function of time past accidents and the significant variables in the regression statistical results were obtained from a sample of 19 013 drivers

time varying persistence in real oil prices and its determinant abstract we provide empirical evidence for pronounced time variation in the persistence of real oil prices in particular we find episodes of mild explosiveness next to periods with random walk and also mean reverting behavior we address the question whether dynamic persistence can be directly related to macro financial variables spot futures spreads spill over effects from commodities and global real economic activity alongside these variables we use a large data set of more than one hundred fifty potential determinants featuring for example further oil related variables production and inventories and key macroeconomic series for the g7 countries by using model averaging techniques we robustly account for the inherent model uncertainty when dealing with such many potential explanatory variables as it turns out the one and only significant measure to explain time varying oil price persistence is the index of global real economic activity by kilian 2009 other variables related to e g supply shocks or speculation are however insignificant in line with recent findings we argue that fundamentals rather than speculation were the drivers of the explosive oil price in the 2000s

forecasting oil prices high frequency financial data are indeed useful abstract the paper examines the importance of combining high frequency financial information along with the oil market fundamentals in order to gain incremental forecasting accuracy for oil prices inspired by french et al 1987 and bollerslev et al 1988 who maintain that future asset returns are also influenced by past volatility we use daily volatilities and returns from financial and commodity markets to generate real out of sample forecasts for the monthly oil futures prices our results convincingly show that although the oil market fundamentals are useful for long run forecasting horizons the combination of the latter with high frequency financial data significantly improve oil price forecasts by reducing the rmse of the no change forecast by approximately 68 results are even more impressive during the oil price collapse period of 2014 15 these findings suggest that we cannot ignore the information extracted from the financial markets when forecasting oil prices our results are both statistically and economically significant as suggested by several robustness tests

quantifying the speculative component in the real price of oil the role of global oil inventories abstract one of the central questions of policy interest in recent years has been how many dollars of the inflation adjusted price of oil must be attributed to speculative demand for oil stocks at each point in time we develop statistical tools that allow us to address this question and we use these tools to explore how the use of two alternative proxies for global crude oil inventories affects the empirical evidence for speculation notwithstanding some differences overall these inventory proxies yield similar results while there is evidence of speculative demand raising the price in mid 2008 by between 5 and 14 dollars depending on the inventory specification there is no evidence of speculative demand pressures between early 2003 and early 2008 as a result current policy efforts aimed at tightening the regulation of oil derivatives markets cannot be expected to lower the real price of oil in the physical market we also provide evidence that the libyan crisis in 2011 shifted expectations in oil markets resulting in a price increase of between 3 and 13 dollars depending on the inventory specification with regard to tensions with iran in 2012 the implied price premium ranges from 0 to 9 dollars

employee choice of health insurance a new specification of health insurance plan choice is developed that uses a nonparametric functional form for the loss function used to evaluate insurance premiums and uncertain out of pocket expenditure the approach is implemented on data resulting from one firm s implementation of a new health plan with three distinct health insurance options health expenditure differences greater than 500 percent are observed indicating extremely strong biased selection plan choices are consistent with a convex loss function for small losses which suggests that consumers underweight high loss low probability outcomes relative to low loss high probability ones copyright 1989 by mit press

differentiated networks equilibrium and efficiency we consider a model of price competition in a duopoly with product differentiation and network effects the value of a good for a consumer is the sum of a common and an idiosyncratic component the first captures the vertical dimension of quality the second captures horizontal differentiation each consumer privately observes his own value for each good but cannot separate the common and the idiosyncratic component therefore he has incomplete information about the value of the goods for the other consumers after firms announce prices consumers choose simultaneously which network to join facing a coordination problem in the efficient allocation both networks are active and the firm with the highest expected quality has the largest market share to characterize the equilibrium allocation we derive necessary and sufficient conditions for uniqueness of the equilibrium of the coordination game played by consumers for given prices the equilibrium allocation differs from the efficient one for two reasons first the equilibrium allocation of consumers to the networks is too balanced since consumers fail to internalize network externalities second if access to the networks is priced by strategic firms then the product with the highest expected quality is also the most expensive this further reduces the asymmetry between market shares and therefore social welfare

bertrand competition under network externalities abstract two firms engage in price competition to attract buyers located on a network the value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good when the size of externalities increases linearly with the number of adoptions we identify the set of pricing strategies that are consistent with an equilibrium in which one of the firms monopolizes the market the set includes marginal cost mc pricing as well as bipartition pricing which offers discounts to some buyers and charges markups to others we show that mc pricing fails to be an equilibrium under non linear externalities in a general network but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity the analysis is applied to platform competition in a two sided market under local and approximately linear externalities

oil prices exchange rates and emerging stock markets abstract while two different streams of literature exist investigating 1 the relationship between oil prices and emerging market stock prices and 2 the relationship between oil prices and exchange rates relatively little is known about the dynamic relationship between oil prices exchange rates and emerging market stock prices this paper proposes and estimates a structural vector autoregression model to investigate the dynamic relationship between these variables impulse responses are calculated in two ways standard and the recently developed projection based methods the model supports stylized facts in particular positive shocks to oil prices tend to depress emerging market stock prices and us dollar exchange rates in the short run the model also captures stylized facts regarding movements in oil prices a positive oil production shock lowers oil prices while a positive shock to real economic activity increases oil prices there is also evidence that increases in emerging market stock prices increase oil prices

developing experience based premium rate discounts in crop insurance this article addresses the feasibility of implementing an experience based premium rate discount system in crop insurance while adverse selection and moral hazard in crop insurance have been extensively studied in the past discount systems or bonus malus incentives have not to our knowledge been investigated our empirical analysis indicates that a crop insurance discount system could be implemented based on a measure of favorable past insurance experience the estimated average discounts based on the rating methods developed in this study ranged from 5 to 9 depending on the crop being considered

historical energy price shocks and their changing effects on the economy abstract the purpose of this paper is to identify the changes in the impact of energy shocks on economic activity with an interest in assessing if an economy s vulnerability and resilience to shocks improved with economic development using data on the united kingdom over the last three hundred years the paper identifies supply aggregate demand and residual shocks to energy prices and estimates their changing influence on energy prices and gdp the results suggest that the impacts of supply shocks rose with its increasing dependence on coal and declined with its partial transition to oil however the transition from exporting coal to importing oil increased the negative impacts of demand shocks more generally the results indicate that improvements in vulnerability and resilience to shocks did not progress systematically as the economy developed instead the changes in impacts depended greatly on the circumstances related to the demand for and supply of energy sources if these experiences are transferable to future markets a transition to a diversified mix of renewable energy is likely to reduce vulnerability and increase resilience to energy price shocks

explanations for the 2014 oil price decline supply or demand abstract the brent price of crude oil declined from 112 in june 2014 to a low of 31 in january 2016 both nominal prices a cumulative decrease of more than 70 some attribute the decline to increased oil production due to the u s shale revolution this paper proposes a variety of diagnostics to assess the how consistent this explanation is with the data i find that the data are broadly inconsistent with this attribution of the decline to shale oil rather the data are more consistent with a demand side explanation of weakening global economic conditions and demand for commodities including but not limited to oil in summary there is no evidence that the u s shale revolution played a significant role in the decline in oil prices since 2014 rather the evidence suggests that weakening oil demand played a much stronger role in driving the 2014 decline in oil prices

how is volatility in commodity markets linked to oil price shocks abstract this study investigates the effects of oil price shocks on volatility of agricultural and metal commodities we decompose an oil price shock to its underlying components including macroeconomics and oil specific shocks the applied method is the structural vector autoregressive svar model and the time span is from april 1983 to may 2014 the investigation is divided into two subsamples before and after may 2006 for agriculture taking into account the 2006 2008 food crisis and change in u s ethanol production policy and before and after january 2008 for metals considering the recent global financial crisis we find that based on impulse response functions the response of volatility of each commodity to an oil price shock differs significantly depending on the underlying cause of the shock for the both periods moreover according to variance decomposition the explanatory power of oil shocks becomes stronger after the crisis the different responses of commodities are described in detail by investigating market characteristics in each period

how do oil producers respond to oil demand shocks abstract this paper analyzes the response of international oil producers to demand induced changes in the price of crude oil during 1975 2011 focusing on potential differences between opec and non opec countries the goal is to derive consistent estimates of the short run price elasticity of crude oil supply at the country level i find that oil producers hardly respond to demand shocks within the same month and that the corresponding impact price elasticities of supply are statistically indistinguishable from zero while there is little evidence of differences in the dynamic responses to a typical flow demand shock on average over the sample period opec members seem to curtail production in response to a speculative demand shock whereas non opec production expands significantly flow and speculative demand shocks account for a nontrivial fraction of the total variability in country level crude oil supply

private crop insurers and the reinsurance fund allocation decision this research investigates the strategic behavior of private crop insurance firms reinsured by the usda through the standard reinsurance agreement this arrangement allows the private firm to strategically allocate individual policies into different risk sharing arrangements thus firm earnings are conditioned upon accurately forecasting policy loss experience our analysis begins with models investigating the characteristics explaining the placement of policies into the assigned risk fund then a simulation model of the sra is used to compare the post sra returns of actual firm allocations to two alternative allocation strategies based on a aggregate models and a policy level econometric

does the volatility of commodity prices reflect macroeconomic uncertainty abstract while there exists numerous studies on the macroeconomic effects of oil and commodity shocks the literature is quite silent on the impact of macroeconomic uncertainty on oil and commodity prices and especially on their volatility this paper tackles this issue through the estimation of a structural threshold vector autoregressive tvar model on a sample of 19 commodity markets we aim at i assessing whether the effect of macroeconomic uncertainty shocks on commodity price returns depends on the degree of uncertainty and ii investigating the transfer from macroeconomic uncertainty to price uncertainty using a newly developed measure of commodity price uncertainty our findings show that both agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty while the impact on precious metals is more parsimonious given their well identified safe haven role in time of economic turmoil in addition we find evidence that the recent 2007 09 recession has generated an unprecedented episode of high uncertainty in numerous commodity prices interestingly our analysis further reveals that volatility and uncertainty in prices can be disconnected this is especially true for the oil market as most important shocks in the 1990s and the beginning of the 2000s that lead to price volatility do not generate price uncertainty highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility

nonparametric estimation of crop insurance rates revisited with the crop insurance program becoming the cornerstone of u s agricultural policy recovering accurate rates is of paramount interest lack of yield data presents by far the most fundamental obstacle to recovery of accurate rates thisarticle employsnew methodology to estimate conditional yield densities and derive the insurance rates in our application we find the nonparametric kernel density estimator requires an additional twenty six years of yield data to estimate the shape of the conditional yield dens itiesasaccurately asthe recently developed empirical bayesnonparametric kernel density estimator such methodological improvements can significantly aid in ameliorating the data problem recovering accurate premium ratesis paramount to the actuarial soundness of the crop insurance program a program which hasgained prominence in the overall u s agricultural policy agenda the 1996 federal agricultural improvement and reform fair act signaled a new policy environment under which farmerswould be s to market forces under this policy regime crop insurance remains in some respects one of the only government subsidized income stabilizing mechanisms available to agricultural producers in addition it appears that current political forcesare in the proces sof fashioning crop insurance as the cornerstone of u s agricultural policy consider the 1999 state of the union address in which the president stated

exogenous oil supply shocks how big are they and how much do they matter for the u s economy abstract the paper proposes a new measure of exogenous oil supply shocks the timing the magnitude and the sign of this measure may differ greatly from current state of the art estimates it is shown that only a small fraction of the observed oil price increases during oil crisis periods can be attributed to exogenous oil production disruptions exogenous oil supply shocks cause a sharp drop of u s real gdp growth after five quarters rather than an immediate and sustained reduction in economic growth and a spike in cpi inflation after three quarters overall exogenous oil supply shocks made remarkably little difference for the evolution of the u s economy since the 1970s although they did matter for some historical episodes

an empirical analysis of moral hazard and experience rating for many years economists and actuaries have studied multiperiod insurance contracts independently and differently the aim of this article is to reduce the gap between empirical studies on the determination of insurance premiums and theoretical studies on moral hazard and experience rating the first objective is to verify empirically the proposition that past experience is a good predictor of risk by using data from a random sample consisting of 19 013 car drivers in quebec the second objective is to construct a multivariate multiperiod pricing formula for automobile insurance in order to reduce the ill effects of moral hazard copyright 1989 by mit press

risk appetite and oil prices abstract we demonstrate that oil prices and their volatility are no longer determined solely by real economic shocks to supply of and demand for oil but are also driven by shocks originating in the economic uncertainty and risk appetite of investors that prevail in the equity market the contribution of the latter factor has become particularly remarkable since the mid 2000s to establish these results we dismantle the squared vix index determined in the s p 500 options market into the conditional variance in stock returns to proxy for economic uncertainty and the equity variance risk premium to proxy for risk appetite using threshold garch structural vector auto regression and causality models we provide evidence about the link between risk appetite oil price returns and volatility furthermore investors appetite for risk drives changes in the ovx which measures perceptions about future oil volatility but not vice versa our results provide a better understanding of the relationship between oil the vix and its two proposed components in particular we show that changes in the risk appetite of investors are an important determinant not only for the price of equities but also for that of the most important energy resource oil

refining the workhorse oil market model the kilian and murphy journal of applied econometrics 2014 29 454 478 structural vector autoregressive model has become the workhorse model for the analysis of oil markets i explore various refinements and extensions of this model including the effects of 1 correcting an error in the measure of global real economic activity 2 explicitly incorporating narrative sign restrictions into the estimation 3 relaxing the upper bound on the impact price elasticity of oil supply 4 evaluating the implied posterior distribution of the structural models and 5 extending the sample i demonstrate that the substantive conclusions of kilian and murphy 2014 are largely unaffected by these changes

global economic activity crude oil price and production stock market behaviour and the nigeria us exchange rate abstract this paper investigates the dynamic relationship among oil price nigeria us exchange rate stock market activity kilian s global economic activity index and global oil production we develop a robust stable single equation error correction model where the exchange rate solely bears the burden of short run adjustments with causal influences from the rest of the variables included in the model we find a role for asymmetry in the long run confirming the presence of equilibrium path adjustment asymmetry and suggesting that the positive and negative variations must be accounted for in designing the policymaking process to enforce stable exchange rate movement by comparing the linear and nonlinear models we find that the two models are complementary and that each is horizon bound in its forecasting ability

does euro or dollar pegging impact the real exchange rate the case of oil and commodity currencies the aim of this paper is to investigate the equilibrium exchange rates for commodity and oil currencies as well as the discrepancies of their observed exchange rates to these equilibriums to this end first we estimate a long term relationship between the real effective exchange rate and economic fundamentals including the commodity terms of trade the estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007 our results show that real exchange rates co move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices second we assess the degree of misalignment of these currencies as the gap between their observed exchange rate and the estimated equilibrium exchange rate we show that these misalignments are not significantly related to the exchange rate regimes adopted by the countries either pegged or floating however for pegged currencies the size of misalignments significantly depends on the anchor currency either the euro or the dollar a comparison of misalignments of pegged commodity and oil currencies across different periods confirms these results during periods of dollar euro overvaluation currencies pegged to the dollar euro tend to be overvalued the reverse being true when the dollar euro is undervalued consequently pegged currencies are often driven away from their equilibria by wild fluctuations in the key currencies on which they are anchored

oil prices and exchange rates the quotations show a sharply divergent pattern in the response of the foreign exchange market to announcements of oil price increases during the first oil shock news about oil price rises led to a strengthening of the dollar whereas during the i979 surge of oil prices the reverse was generally true when the news was not so bad as feared the dollar fell back in i974 but rose in i979 in 1980 the pattern shifted once again back to dollar appreciation is there a rational fundamental explanation for the behaviour of the foreign exchange market or is it a matter of traders responding to what other traders arbitrarily think it is difficult to resolve this question but some insight can be provided through an analytical examination of the relationship between oil price increases and exchange rates the paper begins with a theoretical framework for analysing the relation between oil prices and exchange rates and then uses the theory to explain the behaviour of the foreign exchange market

forecasting the real prices of crude oil using forecast combinations over time varying parameter models abstract in this paper we forecast real prices of crude oil using real time forecast combinations over time varying parameter tvp models with single predictor we reveal the significant predictability at all horizons up to 24 months the mean squared predictive error reduction over the benchmark of no change forecast is as high as 17 and the directional accuracy as high as 0 645 a combination with tvp models is found to generate more accurate forecasts than the same combination with constant coefficient models because the forecast errors of individual tvp models are correlated at a lower degree we also evaluate the forecasting performance in the framework of density forecasting our results indicate that the benchmark model can be significantly outperformed by forecast combination at the horizons longer than 3 months

changes in the global oil market changes in the parameters of a recursively identified oil market model are examined through an iterative algorithm that tests for possible breaks in coefficients and variances the analysis detects breaks in the coefficients of the oil production and price equations together with volatility shifts in all three equations of the model coefficient changes imply an enhanced response of production to aggregate demand shocks after 1980 and that the price response to supply shocks is more persistent from the mid 1990s all variables evidence changes in the relative contributions of individual shocks to their forecast error variances with coefficient and volatility breaks in the first half of the 1990s being particularly important in this respect the results show that analysts of this market should eschew constant parameter models estimated over an extended period

do oil price increases cause higher food prices us retail food price increases in recent years may seem large in nominal terms but after adjusting for inflation have been quite modest even after the change in us biofuel policies in 2006 in contrast increases in the real prices of corn soybeans wheat and rice received by us farmers have been more substantial and can be linked in part to increases in the real price of oil that link however appears largely driven by common macroeconomic determinants of the prices of oil and of agricultural commodities rather than the pass through from higher oil prices we show that there is no evidence that corn ethanol mandates have created a tight link between oil and agricultural markets moreover increases in agricultural commodity prices have contributed little to us retail food price increases because of the small cost share of agricultural products in food prices in short there is no evidence that oil price shocks have been associated with more than a negligible increase in us retail food prices in recent years nor is there evidence for the prevailing wisdom that oil price driven increases in the cost of food processing packaging transportation and distribution have been responsible for higher retail food prices similar results hold for other industrialized countries there is reason however to expect food commodity prices to be more tightly linked to retail food prices in developing countries christiane baumeister and lutz kilian

estimating fiscal multipliers news from a non linear world we estimate non linear vars to assess to what extent fiscal spending multipliers are countercyclical in the us we deal with the issue of non fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures this measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one but not statistically larger than those in expansions however non linearities arise when focusing on extreme events that is deep recessions versus strong expansionary periods

the 2014 oil bust causes and consequences abstract this article suggests that the 2014 oil price collapse was possibly triggered by the falling euro versus the us dollar specifically the usd eur exchange rate likely adjusted to the sudden economic growth outlook divergence between the us and the eu as evident by the relative short term interest rate spread measures and triggered a strong dollar trade which is negative for the crude oil prices thus in our view the 2014 oil price bust is another episode of oil price inefficiency similar to the 2008 oil bubble the key argument presented in this article is that as long as there are temporary economic growth divergences between the us and the eu the resulting exchange rate volatility is likely to create the pricing inefficiencies in crude oil which in fact are mean reverting as the economic growth divergences eventually dissipate

systemic risk reinsurance and the failure of crop insurance markets without affordable reinsurance private crop insurance markets are doomed to fail because systemic weather effects induce high correlation among farm level yields defeating insurer efforts to pool risks across farms using an empirical model of the u s crop insurance market we find that u s crop insurer portfolios are twenty to fifty times riskier than they would be otherwise if yields were stochastically independent across farms we also find that area yield reinsurance contracts would enable crop insurers to cover most of their systemic crop loss risk reducing their risk exposure to levels typically experienced by more conventional property liability insurers copyright 1997 oxford university press

transmission of shocks and contagion from u s to mena equity markets the role of oil and gas markets abstract using a multifactor model augmented with oil and gas returns this paper examines contagion from the us to mena equity markets and studies the role of energy price fluctuations in amplifying the dependence between the us and mena equity markets we provide empirical evidence of a strong contagion effect originating from the us to mena equity markets the regional oil and gas factors account for the bulk of the variance of the mena equity returns and our findings suggest that the oil and gas markets play an important role in strengthening the dependence between the mena and us markets during episodes of market turmoil we discuss the policymaking importance of our results and propose a strategy to curb the adverse effects of us return shocks on mena equity markets during episodes of stress

diversifying away the risk of war and cross border political crisis this paper investigates the behavior of crude oil prices government bonds and stock market indices around outbreaks of severe international crises and wars using a constant mean return event study we show that these events are associated with positive and significant abnormal returns on oil and bonds which means that these two asset classes can potentially shelter shareholders from plummeting equity values during international crises a formal safe haven analysis confirms this insight such price movements may reflect a reallocation of funds across asset classes in response to the events as well as shifts in the demand for oil due to precautionary speculative and military motives we also calculate the weights for optimal portfolios which could provide insurance against conflict risk