The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements

Abstract

This paper proposes a novel approach to study the macroeconomic effects of oil prices, exploiting institutional features of OPEC and high-frequency data. Using variation in futures prices around OPEC announcements as an instrument, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production and an increase in inventories. This has consequences for the U.S. economy: activity falls, prices and inflation expectations rise, and the dollar depreciates – providing evidence for a strong channel operating through supply expectations.

Keywords: Business Cycles, Oil Supply, News Shocks, External Instruments, High-Frequency Identification, OPEC Announcements

JEL Classification: C32, E31, E32, Q43