Do food prices respond to oil-price shocks?
Christiane Baumeister, Lutz Kilian, 30 November 2013
Recently, there has been great concern among policymakers worldwide about rising food prices and increased food-price volatility. It is widely believed that oil and food prices have become closely linked after 2006, owing in part to a shift in US biofuel policies. This column presents evidence that challenges this conventional wisdom.
Increases in agricultural commodity prices and food prices in recent years have raised concerns among policymakers about a global food shortage.
Topics: Global economy
Tags: biofuel, Commodity prices, ethanol, food, oil, Poverty
Is the Phillips curve alive and well after all? Inflation expectations and the missing disinflation
Olivier Coibion, Yuriy Gorodnichenko, 15 November 2013
During the Great Recession, advanced economies have not experienced the disinflation that has historically been associated with high unemployment. This column shows that using consumers’ (as opposed to forecasters’) inflation expectations restores the traditional Phillips curve relationship for recent years. Consumers’ inflation expectations are more responsive to oil prices than those of professional forecasters. The increase in oil prices between 2009 and 2012 may in fact have prevented the onset of pernicious deflationary dynamics.
“Prior to the recent deep worldwide recession, macroeconomists of all schools took a negative relation between slack and declining inflation as an axiom. Few seem to have awakened to the recent experience as a contradiction to the axiom.” (Bob Hall, 2013.)
Topics: Global crisis, Monetary policy
Tags: disinflation, expectations, global crisis, Great Recession, inflation, oil, Phillips curve
Asymmetric oil: Fuel for conflict
Francesco Caselli, Massimo Morelli, Dominic Rohner, 19 July 2013
Oil has often been linked to interstate wars. This column argues that asymmetries in endowments of natural resources are important determinants of territorial conflict. When one country has oil near its border with an oil-less country, the probability of conflict is between three and four times as large as when neither country has oil. In contrast, when the oil is very far from the border, the probability of conflict is not significantly higher than between countries with no oil.
"These acts are tailored in a very systematic way by the Chinese side with the aim to turn undisputed areas into disputed areas".
Vietnamese spokeswoman Nguyen Phuong Nga, following the 9 June 2011 incident where a Chinese fishing boat rammed the survey cables of the PetroVietnam ship.
Topics: Energy, Politics and economics
Tags: Conflict, oil, wars
Simon Commander, Alexander Plekhanov, 29 January 2013
Russia aims to diversify its economy and reduce its dependence on natural resources. Despite laudable aims, this column argues that progress has been sluggish. Longstanding obstacles of corruption, low business-entry rates and weak competition afflict other countries that, like Russia, are in transition. Yet Russia comes pretty much bottom of the class. Crucially, the fact that economic diversification requires improvements to education and skills acquisition has been somewhat overlooked by the state. What attempts the state has made, such as supporting technology innovation, appear to have been ineffectual and, at times, counterproductive. Going forward, Russia would do well to focus on improving incentives for market-relevant research and development, complemented by private sector-led sources of finance for early-stage firms.
Russia aims to diversify its economy, thereby moving away from its dependence on oil and gas. Despite much political rhetoric, our research (European Bank for Reconstruction and Development 2012) indicates that, to date, relatively little has been achieved. Oil and gas still account for nearly 70% of total merchandise exports and around a half of the federal budget.
Tags: economic diversification, education, gas, oil, Russia, skills
Financialisation in oil markets: Lessons for policy
Bassam Fattouh, Lavan Mahadeva, 21 December 2012
In the last decade, there has been an explosion in the variety of instruments that permit speculation in oil, such as futures, options, index funds, and exchange-traded funds. This has been called the financialisation of the oil markets. This column examines whether this has affected the oil price and predicts powerful natural limits on the ability of financialisation shifts to raise spot prices in frictionless markets.
In the last decade, purely financial players with no interest in the physical commodity, such as hedge funds, pension funds, insurance companies and retail investors, have become more prominent in oil futures and derivatives markets.
Topics: Energy, Financial markets
Tags: financialisation, oil, oil price
Managing and harnessing volatile oil windfalls: Three funds, three countries and three stories
Ton van den Bremer, Rick van der Ploeg, 14 December 2012
Many countries experience substantial revenue windfalls from natural resources. The consensus is that these should not be consumed but put in a fund to smooth the benefits across generations. This column examines how policy recommendations may differ among oil-rich countries, here Norway, Ghana and Iraq. It suggests that oil exporters may need to accumulate not only an intergenerational fund but also a liquidity fund to cope with oil price volatility and a domestic investment fund to alleviate the burden of capital scarcity.
Many countries experience substantial revenue windfalls from natural resources. The consensus is that these should not be consumed immediately but put in a fund, typically a sovereign wealth fund, in order to smooth the benefits across generations and deal with the otherwise adverse effects of Dutch disease and the resource curse. But should they? And if so, why?
Topics: Energy, Macroeconomic policy
Tags: oil, oil funds, resource curse
Oil price risk, expropriation and bilateral investment treaties
Johannes Stroebel, Arthur van Benthem, 21 October 2012
The sharp increase in the oil price between 2003 and 2008 brought back the practice of expropriating assets of independent oil companies. This column suggests that bilateral investment treaties may mitigate expropriations and allow resource-rich countries to shift a larger proportion of the risk associated with variations in natural resource prices to oil companies.
The sharp increase in the oil price between 2003 and 2008 brought back a phenomenon commonly observed in the 1960s and 1970s. Countries are expropriating assets of independent oil companies – directly with large unexpected windfall taxes. Countries with recent expropriations include Bolivia, Ecuador, Algeria, Russia, China and Venezuela.
Topics: Energy, Politics and economics
Tags: bilateral investment treaties, expropriation, oil
Do oil prices help forecast US real GDP? The role of non-linearities and asymmetries
Lutz Kilian, 29 June 2012
It has long been argued that changes in the price of oil can help forecast US real GDP growth. This column addresses the common concern among many policymakers that the feedback from oil prices to the economy may become stronger once the price of oil reaches a certain level.
There has been much interest since the 1970s in the question of whether lagged oil price changes help forecast US real GDP growth (Hamilton 2009). This question has taken on new urgency following the large fluctuations in the price of oil in recent years.
Topics: Energy, Macroeconomic policy
Tags: energy prices, oil, oil prices, real GDP, US
Greasing the wheel: Oil’s role in the global crisis
Lucas Chancel, Thomas Spencer, 16 May 2012
Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This column gathers evidence on the role of this rise in prices in the global crisis. It suggests that oil prices had a direct impact on household expenditure on gasoline and increased mortgage delinquency rates. It adds that it also had many indirect impacts, notably though interest rate increases due to monetary policy.
Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This led to a large increase in oil revenues for oil exporters and a deterioration of the current account for oil importers (Figure 1). Between 2002 and 2006, net capital outflows from oil exporters grew by 348%, becoming the largest global source of net capital outflows in 2006 (McKinsey 2007).
Tags: global crisis, oil
Resource trade: Policy and policy reform
Michele Ruta, Anthony Venables, 21 April 2012
Around one fifth of global merchandise trade is in natural resources. Yet national policies manipulate trade flows and prices, and the problem is exacerbated by market failure in long-run extraction contracts. This column argues these problems could be addressed by extending the role of the WTO in the enforcement of resource-extraction agreements.
Resource trade is once again in the spotlight. Oil prices are up 14% since the beginning of the year, creating new concerns for the recovery of the global economy (Annunziata 2012). In March, the governments of Japan, the EU and the US filed a new dispute at the WTO with respect to China's restrictions on the exports of rare earths (WTO 2012).
Topics: Energy, International trade
Tags: natural resources, oil, WTO