Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?
Open accessAbstract
Recently developed structural models of the global crude oil market imply that the surge in the real price of oil between mid 2003 and mid 2008 was driven by repeated positive shocks to the demand for all industrial commodities, reflecting unexpectedly high growth mainly in emerging Asia. We evaluate this proposition using an alternative data source and a different econometric methodology. Rather than inferring demand shocks from an econometric model, we utilize a direct measure of global demand shocks based on revisions of professional real gross domestic product (GDP) growth forecasts. We show that forecast surprises during 2003–2008 were associated primarily with unexpected growth in emerging economies (in conjunction with much smaller positive GDP‐weighted forecast surprises in the major industrialized economies), that markets were repeatedly surprised by the strength of this growth, that these surprises were associated with a hump‐shaped response of the real price of oil that reaches its peak after 12–16 months, and that news about global growth predict much of the surge in the real price of oil from mid 2003 until mid 2008 and much of its subsequent decline. Copyright © 2012 John Wiley & Sons, Ltd.
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Professional forecasters persistently underestimated global growth during 2003-2008, especially growth in emerging Asia.
“Even professional forecasters persistently underestimated global growth during 2003-2008, especially growth in emerging Asia, lending credence to our model results.”
From THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL (2014) · cites this paper as Kilian and Hicks (2013)
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THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL
Kilian, L., & Murphy, D. P. (2014) · Journal of Applied Econometrics · doi:10.1002/jae.2322 · Cited by 1,481 · see citing works
Self-citationThe Role of Speculation in Oil Markets: What Have We Learned So Far?
Fattouh, B., Kilian, L., & Mahadeva, L. (2013) · The Energy Journal · doi:10.5547/01956574.34.3.2 · Cited by 491 · see citing works
Self-citation
- Authors
- Kilian, L., & Hicks, B.
- Affiliations
- University of Michigan (US)
- University of Wisconsin–Madison (US)
- Corresponding author
- Kilian, Lutz
- ORCID
- Kilian, Lutz
- Venue
- Journal of Forecasting
- Publisher
- Wiley
- Published
- 2012-04-10
- Volume
- 32
- Issue
- 5
- Pages
- 385-394
- ISSN
- 0277-6693 (ISSN-L)
- 1099-131X
- OpenAlex
- W2138107423
- Cited by
- 371
- References
- 0
- Citations by year
- 2026: 9 · 2025: 16 · 2024: 11 · 2023: 19 · 2022: 31 · 2021: 43 · 2020: 29 · 2019: 22 · 2018: 32 · 2017: 28 · 2016: 20 · 2015: 21 · 2014: 27 · 2013: 26 · 2012: 22
- FWCI
- 73.46
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Journal of Forecasting (publishedVersion)
- Deep Blue (University of Michigan) (submittedVersion)
- Funders
- University of Pennsylvania
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economics of Agriculture and Food Markets
- Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
- Keywords
- oil prices, global demand shocks, emerging markets, global economic growth
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