Subash Bhandari

Job Market Paper: “Re-examining the importance of oil supply shock."Click here... 

Abstract:  In this paper, I assess the causal impact  of a supply shock that causes 1\% decline in global oil production on three key global oil market variables namely global oil production, global economic activity and oil price. I also investigate if the impact has been changing over time. I make use of two different estimation techniques, a more traditional approach  with recursive identification as  baseline model, and a recently proposed IV estimation methodology as an alternative.  I compare the responses from two different techniques and document the similarities and differences. The response of three global oil market variables are remarkably similar from both models for full sample. Overall, I find that although the absolute impact of oil supply shock on oil price has increased since the mid 1980's, it might not be a major determinant of oil price. My IV analysis also sheds few interesting insights not manifested in the baseline model. Negative response of real oil price  from SVAR-IV differ qualitatively to that of baseline model for observations prior to 1986. I explore further whether the counter-intuitive IV results can be empirically explained by speculative traits of oil price in pre-1986 era. My empirical analysis suggests that oil price prior to 1986 reflected future supply disruption at least a month prior..

“How oil market shocks affect consumer price?" with Hyeongwoo Kim Click Here.. 

Abstract: In this paper, we investigate how the fundamental forces that determine oil prices affect inflation. In particular, we characterize the impulse response function of various inflation categories and subcategories in the U.S. to oil supply shock and aggregate demand shock reflecting movements in global oil market. Overall, we find both these shocks have limited effect on aggregate inflation but pronounced effect on categories that are energy intensive like transport, household energy and gasoline. However, we also note key difference in how these two oil market forces affect various inflation categories and subcategories. While aggregate demand shock causes long lasting increase in inflation for all categories, the impact of supply shock, on the other hand is heterogenous and the impact is usually felt within first year. The heterogeneity is even more pronounced when those are substitutes for each other with deflationary impact on costlier options like in the case of food at home vs away, new vs old cars.