Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us
Journal of Economic Perspectives
vol. 30,
no. 1, Winter 2016
(pp. 139-60)
(Complimentary)
Abstract
It has been 40 years since the oil crisis of 1973/74. This crisis has been one of the defining economic events of the 1970s and has shaped how many economists think about oil price shocks. In recent years, a large literature on the economic determinants of oil price fluctuations has emerged. Drawing on this literature, we first provide an overview of the causes of all major oil price fluctuations between 1973 and 2014. We then discuss why oil price fluctuations remain difficult to predict, despite economists' improved understanding of oil markets. Unexpected oil price fluctuations are commonly referred to as oil price shocks. We document that, in practice, consumers, policymakers, financial market participants, and economists may have different oil price expectations, and that, what may be surprising to some, need not be equally surprising to others.Citation
Baumeister, Christiane, and Lutz Kilian. 2016. "Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us." Journal of Economic Perspectives, 30 (1): 139-60. DOI: 10.1257/jep.30.1.139Additional Materials
JEL Classification
- Q31 Nonrenewable Resources and Conservation: Demand and Supply; Prices
- Q35 Hydrocarbon Resources
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy
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