Identifying Crucial Oil-Price Shocks

Abstract

This study shows that of the nun1erous oil price shocks that occurred during the 1974-1994 period onJy a few had a permanent impact on the level of the real price of crude oil. Two such crucial shocks are identified, one in March 1979 and another in January 1986. The methodology used goes beyond testing the existence of unit roots. While the latter involves determining whether all or none of the shocks had permanent effects, our study searches for particular shocks which had a permanent impact on the oil price. (C22, Q43)