Analyzing dynamic impacts of different oil shocks on oil price

This paper constructs a five-variable time-varying vector autoregressive model based on oil price, oil aggregate supply, oil aggregate demand, global oil inventory, and speculative demand. This model is used to study the dynamic impacts of different oil shocks on oil price from 2002 to 2018, focusing on how different oil shocks affect oil price fluctuation over time. Empirical results show that each type of oil shocks has significantly time-varying characteristics and the impact strength is the greatest under the one-stage lag (i.e. one month), and the impact effect almost disappears around the fifth period. Also, the impacts of important event shocks on oil price volatility are tremendous and have a serious negative impact on the global economy. In addition to the oil specific demand shock (i.e. oil price itself), the dominant factor in oil price after the financial crisis is global oil inventory. Finally, this paper provides some policy suggestions based on the findings.