The source of real oil price fluctuations: a fresh view from the frequency domain

ABSTRACT

This paper analyzes the role of different types of oil price shocks for real oil price fluctuations and contributes by exploiting insights from the frequency domain perspective. We find aggregate demand shocks are the most important contributor to real oil price fluctuations in the entire spectrum. Besides, oil-specific demand shocks have a relatively important impact on real oil price changes at high frequencies and business cycle frequencies, while oil supply shocks have a relatively important impact on real oil price changes at low frequencies and frequency zero.

KEYWORDS:

• Oil price shocks
• Spectral variance decomposition
• Sign restrictions

JEL CLASSIFICATION:

• C22
• E32
• Q43

Acknowledgments

We are deeply grateful to the editor, Mark Taylor and an anonymous referee for helpful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

Yanfeng Wei gratefully acknowledges financial support from the National Natural Science Foundation of China [71963015].