Real Demand, Precautionary Demand and Monopolized Supply---- Dynamic Decomposition of Crude Oil Pricing Mechanism
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| Title | Real Demand, Precautionary Demand and Monopolized Supply---- Dynamic Decomposition of Crude Oil Pricing Mechanism
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| Author | WU Libo TANG Weiqi and WANG Renjie |
| Organization | School of Economics, Fudan University, Center for Energy Economics and Strategy Studies, Fudan University,Guanghua School of Management, Peking University |
| Email | wulibo@fudan.edu.cn |
| Key Words | Superposed Impulse Response; Crude Pricing Mechanism; SVAR; Decomposition; Structural Change |
| Abstract | Based on the Superposed Impulse Response (SIR) Decomposition Approach and structural change analysis, we decompose the oil price shock into supply-side effects, demand-side effects and precautionary-demand effects. Our empirical results indicated a structural change in the pricing mechanism of oil in this century. Specifically, 1) oil price respond to supply shock positively, which violates basic economic principal. We attribute this phenomenon mainly to changes in market expectation structure; 2) financial market element are playing more and more important role in oil pricing, and was the main driven force in the 2007-2008 oil price surge; 3) demand-side effects were moderate for most of the time, but still it added fuel to the sore of crude price before the financial crisis. |
| Serial Number | WP186 |
| Time | 2012-02-14 |
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