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Mr. Nooman Rebei and Rashid Sbia
This paper documents the determinants of real oil price in the global market based on SVAR model embedding transitory and permanent shocks on oil demand and supply as well as speculative disturbances. We find evidence of significant differences in the propagation mechanisms of transitory versus permanent shocks, pointing to the importance of disentangling their distinct effects. Permanent supply disruptions turn out to be a bigger factor in historical oil price movements during the most recent decades, while speculative shocks became less influential.
Mr. Nooman Rebei and Rashid Sbia

Venezuelan crisis and Iraq War resulted in an approximately 13 percent upsurge in the price of crude oil. The decomposition of price dynamics captures an episode of sharp temporary decline in oil supply — consistent with the narrative analysis — accounting for about the total price upswing. Subsequently, speculative innovations eventually became prominent drivers of price softening following a sequence of negative shocks. In parallel, permanent shocks to supply trend remained muted. The Global Financial Crisis of 2008 . The model attributes the bulk of the decline in the

International Monetary Fund. Research Dept.

. Countercyclical fiscal policies—which build buffers during commodity price upswings that can be used during downswings—can help insulate small commodity exporters that are exposed to economic volatility induced by commodity price fluctuations. However, when price increases endure permanently, higher public investment and lower labor and capital taxes can boost private sector productivity and welfare. Against the backdrop of near-record commodity prices, coupled with unusual uncertainty in the global outlook, the priority for commodity exporters is to upgrade their policy

. Boom episodes with limited leverage and financial intermediary involvement tend to deflate without major economic disruptions. The risks for the economy are greater when the asset price upswing is fueled through leverage and risk resides primarily within the banking system. A mix of policy tools is likely to be the best way of deflating a boom. In future, monetary policy will have to take asset price booms and financial stability more into account. But the policy response has to involve greater recourse to new flexible prudential measures aimed at limiting the