The remaining three shocks all affect oil demand. A positive aggregate economic activity shock is characterized by positive comovement in all five endogenous variables. Economic activity shocks include, for example, a loosening of monetary policy or reforms that increase economy-wide productivity. In particular, an increase in total factor productivity would increase the marginal product of all inputs including oil and, consequently, increase oil demand. A positive precautionary oil demand shock, on other hand, increases the real oil price, decreases global output, decreases U.S. oil consumption, and increases U.S. and non-U.S. oil production. These shocks are designed to account for oil price movements that are associated with uncertainty about expected oil supply relative to expected oil demand. Precautionary demand for oil relates to holding oil inventories that provide a convenience yield driven by supply concerns, which can occur over potential unanticipated expansion in oil demand, unanticipated contraction in oil supply, or both (see Kilian, 2009; Kilian & Murphy, 2012).

A positive U.S. energy efficiency shock decreases U.S. oil consumption, decreases the real price of oil, increases the global GDP factor, and decreases U.S and non-U.S. oil production. Since the sign restrictions are only imposed on the impact period, the framework is agnostic about general equilibrium effects that may result in a sign reversal. For example, I postulate that U.S. oil consumption will decrease in response to a positive U.S. energy efficiency shock as firms require less oil to produce a given level of output. However, improvements in energy efficiency may not necessarily translate into energy-use reduction owing to a rebound effect. This implies that following a positive energy efficiency shock, a decrease in oil consumption would be less than expected as a result of a “rebound” in oil use as real price of oil decreases. The magnitude of the rebound effect can vary from “backfire” (also known as the Jevons paradox), where energy use increases following an improvement in energy efficiency, to super-conservation, where energy consumption declines more than the improvement in energy efficiency (Bruns et al., 2021). Thus, the sign restrictions imposed here are sufficiently flexible to capture the full spectrum of effects in the period following impact. However, at impact, a backfire effect is ruled out by assumption, which is not problematic given that overall existing evidence provides little support for the backfire hypothesis (see Gillingham, Kotchen, Rapson, & Wagner, 2013; Gillingham, Rapson, & Wagner, 2015).

Table 2 provides the sign restrictions imposed on the set of VAR models augmented with country GDP data. The sign restrictions only differ in terms of how country output responds to oil demand and oil supply shocks across oil exporting and importing countries. In particular, in response to a positive oil supply shock, oil exporters’ GDP declines and oil importers’ GDP increases as the real price of oil falls. Similarly, in response to an unanticipated improvement in U.S. energy efficiency, oil demand decreases and, consequently, the real price oil falls. This results in a decrease (increase) in oil exporter’s (importer’s) GDP, whereas, in response to a positive precautionary oil demand shock, oil exporters’ GDP declines and oil importers’ GDP increases as the real price of oil increases. A positive aggregate economic activity shock increases GDP across all countries.

**_Elasticity Bound on Impact Price Elasticity of Oil Supply._** A fundamental drawback of the VAR model identified based on sign restrictions is that it does not provide point estimates

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