The goal of this master thesis is to analyze impact of shocks in oil prices to automobile industry stock prices and returns. We decompose oil price shocks on oil supply shocks, aggregate demand shocks and oil-specific demand shocks and assess their individual impacts on these stock prices/returns. This is done using the vector autoregression (VAR) methodology which allows us to compute impulse responses, that is the reaction paths on the individual shocks. In addition to linear VARs we also employ threshold VAR models in order to capture nonlinearities in impulse responses and besides the aggregate automobile stock price index we compute these nonlinear impulse responses also for some selected individual car producers. We think that this analysis have two different uses. First, it can be beneficial to stock market investors. Second, it can be used by policymakers in countries such as Slovakia and the Czech Republic, which are relatively heavily dependent on automotive industry. 1

Nine of the ten recessions since WWII have been preceded by relatively large and sudden increases in the price of oil. In this paper, I use time series analysis to forecast GDP growth using oil prices. I use the methodology from Hamilton (2009), and extend the dataset through 2010. Impulse response functions are used to analyze the historical performance of the model’s one-year-ahead forecasts. In April, 2011, the International Monetary Fund changed its forecast of 2011 GDP growth in the U.S. from 3.0% to 2.8% largely due to persistently high oil prices. My model suggests that the price increase in 2011Q1 will lead to growth of 2% in 2011. Furthermore, my model predicts that a 54% increase in crude oil prices during the second quarter of 2011 will lead the U.S. into a double dip recession.

The objective of this research concerns identifying whether or not there is a relationship between oil price increases in a given quarter and the likelihood of a recession in the subsequent quarter. The data used is gathered from the St. Louis Fed's Fred II, the National Bureau of Economic Research, and the Energy Information Administration to generate modified variables. These variables are tested using a qualitative dependent variable, recession, in a binary choice model. The findings validated the assumption that oil prices do have a correlation with recessions, and that the relationship is a direct one. Based on the model, an increase in the price of oil will positively affect the likelihood of a "recession" outcome versus the alternative, "no recession". It is anticipated that the results will inspire future research into the causes and effects of oil price surges, as well as the determinants of economic contractions in the future based on policy decisions and economic decision-making practices in the present.

Thesis (PhD)--Stellenbosch University, 2012. / ENGLISH ABSTRACT: Oil is the quintessential resource in the modern industrial economy. It accounts for a third of world primary energy, fuels 95% of global transport systems, sustains a highly mechanised agribusiness and food distribution industry, and provides the feedstock for a staggering array of petrochemical products. Historically, global economic growth has been closely coupled with consumption of energy in general and oil in particular. Yet oil is a finite resource subject to depletion, which has profound implications for the long-term sustainability of industrial civilisation. This dissertation addresses a serious dearth of attention given to this vital subject within South African energy, economic and policy discourses. The overarching aims are to understand the implications of global oil depletion for socioeconomic welfare in South Africa and to propose viable strategies and policies for mitigating and adapting to potential negative impacts. A comparative evaluation of three fields of study found that neoclassical economics is limited by its monistic and reductionist approach and its failure to adequately incorporate energy into its key theoretical models, whereas ecological economics and the socioecological systems approach together provide an appropriate, holistic lens for analysing the role of energy in socioeconomic systems. In this view, energy is the master resource: it is a pre-requisite for economic activity and societal complexity. A review of the literature on global oil depletion finds that a peak and decline in world oil production appears imminent, while world oil exports most likely peaked in 2005. Moreover, the energy return on (energy) investment (EROI) for global oil production is on a declining trend. The world oil peak thus marks the end of the era of cheap and abundant oil. Increasing oil scarcity will likely be reflected in oil prices following a rising trend with heightened volatility. While there are many potential substitutes for oil, all have significant limitations, most have lower EROI than oil, and it may take decades to scale them up sufficiently. Many aspects of the South African socioeconomic system are either directly or indirectly dependent on petroleum fuels, while structural features of the economy and society render them vulnerable to external shocks. Historical evidence and empirical models suggest that oil price and supply shocks will have debilitating socioeconomic impacts. Under business-as-usual policies and behaviours, future oil scarcity will likely lead at best to a gradual contraction in the economy with rising unemployment and inflation, and at worst to systemic collapse of interconnected critical infrastructure systems. A comprehensive range of mitigation measures are proposed, including accelerated investments in renewable energy and electrified mass transport, agro-ecological farming, greening the economy, monetary system reform, and rationing schemes to protect the most vulnerable members of society. Together these measures can build resilience to shocks and gradually decouple economic activity from petroleum consumption. A successful societal transition from a fossil fuel based industrial regime to a sustainable socioeconomic regime requires purposive government intervention, the promotion of sustainability-oriented innovations in technology and institutions, and the political will to surmount obstacles such as powerful vested interests and socio-technical lock-in. / AFRIKAANSE OPSOMMING: Olie is die kern-hulpmiddel in die moderne bedryfsgerigte ekonomie. Dit is verantwoordelik vir ’n derde van die wêreld se primêre energie, verskaf die aandrywing vir 95% van alle vervoerstelsels, onderhou ’n hoogs gemeganiseerde landboubedryf en voedselverspreidingsnywerheid, en voorsien die voerstof vir ’n verstommende reeks petrochemiese produkte. Histories beskou, is globale ekonomiese groei ten nouste gekoppel aan die verbruik van energie oor die algemeen en aan olie in die besonder. Tog is olie ’n beperkte hulpbron wat onderworpe is aan uitputting en lediging, en dit hou gevolglik onmeetlike implikasies vir die algemene langtermyn volhoubaarheid van nywerhede in. Dié verhandeling neem die ernstige gebrek aan aandag binne Suid-Afrikaanse diskoerse oor energie, ekonomie en beleidsrigtings wat betref hierdie lewensbelangrike onderwerp, in oënskou. Die oorkoepelende doelwitte is om die implikasies van globale olie-uitputting op sosio-ekonomiese welvaart in Suid-Afrika te begryp, en om lewensvatbare strategieë en beleidsrigtings voor te stel waarvolgens potensiële negatiewe invloede getemper en by aangepas kan word. ’n Vergelykende evaluering van drie studieterreine het bevind neoklassieke ekonomie is beperk weens sy monistiese en verlagingsbenadering en sy mislukking om energie doelmatig in te sluit by sy sleutel teoretiese modelle, terwyl die benaderings van die ekologiese ekonomie en die sosio-ekologiese stelsels saam ’n toepaslike holistiese lens bied vir die analisering van die rol van energie in sosio-ekonomiese stelsels. In dié opsig is energie die meester-hulpmiddel: dit is ’n voorvereiste vir ekonomiese bedrywigheid en gemeenskapsverbondenheid. ’n Oorsig van die literatuur oor globale olie-lediging toon dat ’n toppunt en daling in wêreldolieproduksie onvermydelik blyk te wees – globale olie-uitvoer het na alle waarskynlikheid sy toppunt in 2005 bereik. Voorts toon die energie-opbrengs op (energie) investering, ofte wel EROI, ten opsigte van wêreldolieproduksie ’n dalende tendens. Die wêreldolie-toppunt dui dus op die einde van die era van goedkoop en oorvloedige olie. Toenemende olieskaarste sal waarskynlik blyk uit oliepryse wat ’n stygende tendens volg gepaard met verskerpte veranderlikheid. Hoewel daar talle potensiële plaasvervangers vir olie bestaan, het almal beduidende beperkinge, die meeste se EROI is laer as olie s’n en dit kan dekades duur alvorens hulle genoegsaam opgegradeer sal kan word. Vele aspekte van die Suid-Afrikaanse sosio-ekonomiese stelsel is of direk of indirek afhanklik van petroleum-brandstowwe, terwyl strukturele kenmerke van die ekonomie en samelewing hulle kwesbaar vir eksterne skokke laat. Lesse uit die verlede en empiriese modelle dui daarop dat die olieprys en skokke rondom die voorsiening daarvan verlammende sosio-ekonomiese impakte en invloede tot gevolg sal hê. Onder ’n sake-soos-gewoonlik-beleid en optrede, sal toekomstige olieskaarste, optimisties beskou, waarskynlik aanleiding gee tot geleidelike inkrimping van die ekonomie met gepaardgaande stygende werkloosheid en inflasie – pessimisties beskou, kan dit die sistematiese ineenstorting van kritiesbelangrike en onderling verbonde infrastruktuurstelsels beteken. ’n Omvattende reeks verligtingsmaatreëls word voorgestel, insluitende versnelde investering in hernubare energie en geëlektrifiseerde massavervoer, agro-ekologiese landbou, vergroening van die ekonomie, monetêre stelselhervorming en rantsoeneringskemas om die mees kwesbare lede van die samelewing te beskerm. Saam kan dié maatreëls veerkragtigheid vestig teen skokke en ekonomiese bedrywigheid geleidelik van petroleumverbruik losmaak. ’n Geslaagde samelewingsoorgang van ’n fossielbrandstof-gebaseerde nywerheidsbestel na ’n volhoubare sosio-ekonomiese bestel vereis doelmatige regeringsintervensie, die bevordering van volhoubaar-georiënteerde innovasies in

The thesis studies three distinct issues in monetary economics using a common dynamic general equilibrium approach under the assumptions of rational expectations and nominal price rigidity. The first chapter deals with the so-called "liquidity trap" - an issue which was raised originally by Keynes in the aftermath of the Great Depression. Since the nominal interest rate cannot fall below zero, this limits the scope for expansionary monetary policy when the interest rate is near its lower bound. The chapter studies the conduct of monetary policy in such an environment in isolation from other possible stabilization tools (such as fiscal or exchange rate policy). In particular, a standard New Keynesian model economy with Calvo staggered price setting is simulated under various alternative monetary policy regimes, including optimal policy. The challenge lies in solving the (otherwise linear) stochastic sticky price model with an explicit occasionally binding non-negativity constraint on the nominal interest rate. This is achieved by parametrizing expectations and applying a global solution method known as "collocation". The results indicate that the dynamics and sometimes the unconditional means of the nominal rate, inflation and the output gap are strongly affected by uncertainty in the presence of the zero lower bound. Commitment to the optimal rule reduces unconditional welfare losses to around one-tenth of those achievable under discretionary policy, while constant price level targeting delivers losses which are only 60% larger than under the optimal rule. On the other hand, conditional on a strong deflationary shock, simple instrument rules perform substantially worse than the optimal policy even if the unconditional welfare loss from following such rules is not much affected by the zero lower bound per se. The second thesis chapter (co-authored with Andrea Pescatori) studies the implications of imperfect competition in the oil market, and in particular the existence of a welfare-relevant trade-off between inflation and output gap volatility. In the standard New Keynesian model exogenous oil shocks do not generate any such tradeoff: under a strict inflation targeting policy, the output decline is exactly equal to the efficient output contraction in response to the shock. I propose an extension of the standard model in which the existence of a dominant oil supplier (such as OPEC) leads to inefficient fluctuations in the oil price markup, reflecting a dynamic distortion of the economy's production process. As a result, in the face of oil sector shocks, stabilizing inflation does not automatically stabilize the distance of output from first-best, and monetary policymakers face a tradeoff between the two goals. The model is also a step away from discussing the effects of exogenous oil price changes and towards analyzing the implications of the underlying shocks that cause the oil price to change in the first place. This is an advantage over the existing literature, which treats the macroeconomic effects and policy implications of oil price movements as if they were independent of the underlying source of disturbance. In contrast, the analysis in this chapter shows that conditional on the source of the shock, a central bank confronted with the same oil price change may find it desirable to either raise or lower the interest rate in order to improve welfare. The third thesis chapter (co-authored with Andrea Pescatori) studies the extent to which the rise in US macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. This is done by estimating with Bayesian methods the model developed in the second chapter over two samples - before and after 1984 - and conducting counterfactual simulations. In doing so we nest two other popular explanations for the so-called "Great Moderation": (1) smaller (non-oil) shocks; and (2) better monetary policy. We find that the reduced oil share can account for around one third of the inflation moderation, and about 13% of the GDP growth moderation. At the same time smaller oil shocks can explain approximately 7% of GDP growth moderation and 11% of the inflation moderation. Thus, the oil share and oil shocks have played a non-trivial role in the moderation, especially of inflation, even if the bulk of the volatility reduction of output growth and inflation is attributed to smaller non-oil shocks and better monetary policy, respectively. / La tesis estudia tres problemas distintos de macroeconomía monetaria utilizando como marco común el equilibrio general dinámico bajo expectativas racionales y con rigidez nominal de los precios. El primer capítulo trata el problema de la "trampa de liquidez" - un tema planteado primero por Keynes después de la Gran Depresión de 1929. El hecho de que el tipo de interés nominal no pueda ser negativo limita la posibilidad de llevar una política monetaria expansiva cuando el tipo de interés se acerca a cero. El capítulo estudia la conducta de la política monetaria en este entorno en aislamiento de otros posibles instrumentos de estabilización (como la política fiscal o la política de tipo de cambio). En concreto, se simula un modelo estándar Neo-Keynesiano con rigidez de precios a la Calvo bajo diferentes regimenes de política monetaria, incluida la política monetaria óptima. El reto consiste en resolver el modelo estocástico bajo la restricción explícita ocasionalmente vinculante de no negatividad de los tipos de interés. La solución supone parametrizar las expectativas y utilizar el método de solución global conocido como "colocación". Los resultados indican que la dinámica y en ocasiones los valores medios del tipo de interés, la inflación y el output gap están muy influidos por la presencia de la restricción de no negatividad. El compromiso con la regla monetaria óptima reduce las pérdidas de bienestar esperadas hasta una décima parte de las pérdidas obtenidas bajo la mejor política discrecional, mientras una política de meta constante del nivel de precios resulta en pérdidas que son sólo 60% mayores de las obtenidas bajo la regla óptima. Por otro lado, condicionado a a un choque fuerte deflacionario, las reglas instrumentarias simples funcionan mucho peor que la política óptima, aun si las pérdidas no condicionales de bienestar asociadas a dichas reglas no están muy afectadas por la presencia de la restricción de no negatividad en si. El segundo capítulo de la tesis estudia las implicaciones de la competencia imperfecta en el mercado del petróleo, y en concreto la existencia de un conflicto relevante entre la volatilidad de la inflación y la del output gap de un país importador de petróleo. En el modelo estándar Neo Keynesiano, los choques petroleros exógenos no generan ningún conflicto de objetivos: bajo una política de metas de inflación estricta, la caída del output es exactamente igual a la contracción eficiente del output en respuesta al choque. Este capitulo propone una extensión del modelo básico en la cual la presencia de un proveedor de petróleo dominante (OPEP) lleva a fluctuaciones ineficientes en el margen del precio del petróleo que reflejan una distorsión dinámica en el proceso de producción de la economía. Como consecuencia, ante choques provinientes del sector de petróleo, una política de estabilidad de los precios no conlleva automáticamente a una estabilización de la distancia del output de su nivel eficiente y existe un conflicto entre los dos objetivos. El modelo se aleja de la discución los efectos de cambios exógenos en el precio del petróleo y se acerca al análisis de las implicaciones de los factores fundamentales que provocan los cambios en el precio del petróleo en primer lugar. Esto último representa una ventaja clara frente a la literatura existente, la cual trata tanto los efectos macroeconómicos como las implicaciones para la política monetaria de cambios en el precio del petróleo como si éstos fueran independientes de los factores fundamentales provocando dicho cambio. A diferencia de esta literatura, el análisis del capitulo II demuestra cómo frente al mismo cambio en el precio del petróleo, un banco central puede encontrar deseable bien subir o bajar el tipo de interés en función del origen del choque. El tercer capitulo estudia el grado en que el ascenso de la estabilidad macroeconómica en EE.UU. a partir de mediados de los 80 se puede atribuir a cambios en la naturaleza de los choques petroleros y/o el peso del petróleo en el PIB. Con este propósito se estima el modelo desarrollado en el capitulo II con métodos Bayesianos utilizando datos macroeconómicos de dos periodos - antes y después de 1984 - y se conducen simulaciones contrafactuales. Las simulaciones permiten dos explicaciones alternativas de la "Gran Moderación": (1) menores choques no petroleros; y (2) mejor política monetaria. Los resultados apuntan a que el petróleo ha jugado un papel no-trivial en la moderación. En particular, el menor peso del petroleo en el PIB a partir de 1984 ha contribuido a una tercera parte de la moderación de la inflación y un 13% de la moderación del output. Al mismo tiempo, un 7% de la moderación del PIB y 11% de la moderación de la inflación se pueden atribuir a menores choques petroleros.