Research Discussion Papers, Bank of Finland
No 9/2008:
Using financial markets information to identify oil supply shocks in a restricted VAR
Marko Melolinna ()
Abstract: This paper introduces a methodology for identifying oil
supply shocks in a restricted VAR system for a small open economy.
Financial market information is used to construct an identification scheme
that forces the response of the restricted VAR model to an oil shock to be
the same as that implied by futures markets. Impulse responses are then
calculated by using a bootstrapping procedure for partial identification.
The methodology is applied to Finland and Sweden in illustrative examples
in a simple 5-variable model. While oil supply shocks have an inflationary
effect on domestic inflation in these countries during the past decade or
so, the effect on domestic GDP is more ambiguous.
Keywords: oil futures; partial identification; macroeconomic shocks; (follow links to similar papers)
JEL-Codes: C01; E32; E44; (follow links to similar papers)
35 pages, March 18, 2008
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