Essays on Time Series Analysis of Crude Oil Market with Non-Gaussian Approach & General Equilibrium Analysis of the Effect of Oil Sanctions

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2021-05

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Abstract

This dissertation consists of two chapters. In the first chapter, I construct a structural vector autoregressions (SVAR) model to disentangle the effect of oil supply, economic activity, and oil-specific demand shocks. I utilize a statistical approach based on non-gaussianity to identify the model. This method relies on three main assumptions. First, Structural shocks are non-Gaussian. Second, exogenous shocks constitute a linear functional form. Third, contemporaneous effects have a recursive form, but the specific ordering does not need to be assumed exogenously. I found that oil supply shocks do not significantly affect economic activity and the oil price. However, aggregate demand and oil-specific demand shocks have a persistent and significant effect on economic activity and the oil price. The historical decomposition of structural shocks displays that aggregate demand shocks are the primary driver of oil price fluctuations. In the second chapter, I develop a theoretical general equilibrium model of oil and non-oil international trade to investigate the price and welfare effects of sanctions on energy exporter countries. The framework is constructed based on the Eaton-Kortum (2002) model with two main distinctions. First, oil functions as a separate intermediate good in production, similar to the non-oil goods and labor. Second, the revenue from the excess amount of exported oil is reflected in the labor force revenue. In the numerical exercise, I show -assuming the same level of technology across countries with symmetric trade costs- incorporating the oil sector increases the real wage for oil-exporting countries. Therefore, countries with higher oil production will import more from other countries and less from themselves. Moreover, I display more considerable differences between sanctioning countries' states of technology contribute to their incentive to lower sanctions and increase welfare.

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Keywords

non-gaussian, ICA, SVAR, EK, Eaton-Kortum

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