Investigating effects of oil price changes on the US, the UK and Japan

Abstract

Based on the structural VAR model of the global crude oil market proposed by Kilian(2009), this article investigates the causes for wild fluctuations in oil prices since the mid-2000s. A main contribution of the study is to compare the effects of changes in oil price on three major economies, the US, the UK, and Japan. I find oil-specific demand shocks as well as aggregate demand shocks played an important role in the rise in the real price of oil since early 2002 and the subsequent sharp drops after the failure of Lehman Brothers Holdings Inc.. Moreover I have found that oil-specific demand shocks increase real GDP in Japan, which is very different from the US and the UK where oil-specific demand shocks lead to reduction in real GDP. This difference possibly comes from the oil efficiency of Japanese products.SVAR,Oil price