Search

Several recent studies have expressed concern that the Haar prior typically employed in estimating sign-identified VAR models is driving the prior about the structural impulse responses and hence their posterior. In this paper, we provide evidence that the quantitative importance of the Haar prior for posterior inference has been overstated. How sensitive posterior inference is to the Haar prior depends on the width of the identified set of a given impulse response. We demonstrate that this width depends not only on how much the identified set is narrowed by the identifying restrictions imposed on the model, but also depends on the data through the reduced-form model parameters. Hence, the role of the Haar prior can only be assessed on a case-by-case basis. We show by example that, when the identification is sufficiently tight, posterior inference based on a Gaussianinverse Wishart-Haar prior provides a reasonably accurate approximation. [ABSTRACT FROM AUTHOR]

This paper seeks to understand the general equilibrium effects of time-varying geopolitical risk in oil markets. Answering this question requires simultaneously modeling several features including macroeconomic disasters and geopolitically driven oil production disasters, oil storage and precautionary savings, and the endogenous determination of uncertainty about output and the price of oil. We find that oil price uncertainty tends to be driven by macroeconomic uncertainty. Shifts in the probability of a geopolitically driven major oil supply disruption have meaningful effects on the price of oil and the macro economy, but the resulting oil price uncertainty is not a major driver of fluctuations in macroeconomic aggregates. [ABSTRACT FROM AUTHOR]

This paper documents the effect of the oil embargo and price cap on Russian oil exports in the wake of the Russian invasion of Ukraine in February 2022. We show that the embargo forced Russia to accept a $32/bbl discount on its Urals crude in March 2023 relative to January 2022, nearly half of which is directly attributable to the higher cost of shipping crude oil over longer distances, as Russia diverted much of its crude oil exports to India. Based on a calibrated model of global oil supply and demand, the remainder ($17/bbl) can be explained by increased Indian bargaining power. We also provide a similar analysis for the ESPO price discount on exports to China. In contrast, the price cap deprived Russia of the financial resources it spent on assembling a “shadow” fleet of tankers, but its effect on the Russian oil export price was negligible once the adoption of the price cap had facilitated the use of Western services to transport Russian oil to Asia. [ABSTRACT FROM AUTHOR]

It is common in applied work to estimate responses of macroeconomic aggregates to news shocks derived from surprise changes in daily futures prices around the date of policy announcements. This requires mapping the daily surprises into a monthly shock that may be used as an external instrument in a monthly VAR model or local projection. The standard approach has been to sum these daily surprises over the course of a given month when constructing the monthly proxy variable, ignoring the accounting relationship between daily and average monthly price data. In this paper, I provide a new approach to constructing monthly proxies from daily surprises that takes account of this link and revisit the question of how to use OPEC announcements to identify news shocks in VAR models of the global oil market. The proposed approach calls into question the interpretation of the identified shock as oil supply news and implies quantitatively and qualitatively different estimates of the macroeconomic impact of OPEC announcements. [ABSTRACT FROM AUTHOR]