Not All Oil Price Shocks Are Alike. A Replication of Kilian (American Economic Review, 2009)

TL;DR

This paper replicates and extends Kilian's 2009 analysis on how different types of oil price shocks impact economies, using updated data and advanced statistical methods to provide new insights for policymakers.

Contribution

It provides a replication and extension of Kilian's analysis with recent data and improved inference methods, enhancing understanding of oil price shocks' effects.

Findings

Different types of oil shocks have distinct economic impacts.

Updated data confirms Kilian's original conclusions.

Advanced inference methods strengthen the robustness of results.

Abstract

The price of oil can rise because of a disruption to supply or an increase in demand. The nature of the price change determines the dynamic effects. As Kilian (2009) put it: "not all oil price shocks are alike." Using the latest available data, we extend Kilian's (2009) analysis using the R ecosystem and provide more evidence for Kilian's (2009) conclusions. Inference based on unknown conditional heteroskedasticity strengthens the conclusions. With the updated shocks, we assess how a local economy responds to the global oil market, an application that is relevant to policymakers concerned with the transition away from fossil fuels.