News Shocks in Open Economies Evidence from Giant Oil Discoveries

This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present...

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Main Author: Arezki, Rabah
Other Authors: Ramey, Valerie A., Sheng, Liugang
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2015, 2015
Series:IMF Working Papers; Working Paper
Subjects:
Gdp
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Collection: International Monetary Fund - Collection details see MPG.ReNa
Summary:This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time
Physical Description:54 p.
ISBN:1513543156
9781513543154