A quick glance at the history of oil prices reveals that long periods of stability have been interrupted by sharp, often sudden jumps in price. A single oil shock can wreak havoc on the finances of energy companies, prompt economic reform and reshape global geopolitics. But what causes these price swings? And how do they affect the economies of countries that are major energy exporters?
Oil price fluctuation is influenced by both demand and supply, but the impact of these two factors differs across economies. In particular, the impact of oil demand shocks on output differs from that of oil supply shocks. A variety of reasons for this variation exist, including different effects on domestic consumption and different effects on the exchange rate.
Blanchard and Gali (2007) find that in recent years, the impact of oil price shocks on growth and inflation has been much smaller than during the 1970s. They argue that the difference is mainly because of differences in how the shocks are transmitted from the supply to the demand side.
This paper identifies the source structure of crude oil price fluctuations using a state-space model. It also decomposes the commodity attribute and financial attribute of oil prices to investigate their influence mechanisms. The results show that the financial attribute has a stronger impact on oil prices than the commodity attribute, especially during the period before and after the 2008 financial crisis. It is also found that the dynamic evolution characteristics of crude oil prices and their fluctuation sources are asymmetric.