This paper uses cointegration to evaluate long-run foreign exchange exposure. Since this technique requires exchange rates to be nonstationary, such that purchasing power parity does not hold in the long run, the analysis focuses on recent empirical findings suggesting that real exchange rates are nonstationary particularly because of oil price changes. Hence, the paper also estimates long-run ...

The relationship between oil price shocks and U.S. macroeconomic fluctuations advocated by Hamilton (1983) broke down in the 1980s amidst a new regime of highly volatile oil price movements. Several authors have argued that asymmetric and nonlinear transformations of oil prices restore that relationship, and thus that the economy responds asymmetrically and nonlinearly to oil price shocks. In t...

This paper is adapted from a speech given by James Bond at the International Energy Agency, 14 May 1998. The views expressed in this paper are those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organisations, or to members of its board of executive directors or the countries they represent. The long-term price of oil should rest near its long ru...

The US shale exploration and production (E&P) industry has grown since 2007 due to the development of new techniques such as hydraulic fracturing and horizontal drilling. As a result, the share of shale gas in the US natural gas production is almost 50%, and the share of tight oil in the US crude oil production is almost 52%. Even though oil and gas prices decreased sharply in 2014, the product...

The markup (the ratio of price to marginal cost) in Canada has risen steadily since the early 1990s suggesting a widening gap between the actual and the efficient level of output and a declining share of labour income in GDP. It exhibits non-stationary movements over the sample period 1982Q1 to 2009Q4, allowing us to identify a permanent markup shock. We provide evidence that oil price movement...

Working papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank...

During the first quarter of 2002, the price of crude oil averaged $19.67 per barrel. Four years later, in the first quarter of 2006, the average price of oil had risen to $63 per barrel. Indeed, the high price of oil may not be a short-lived phenomenon: Futures markets indicate that investors expect the price of oil to remain above $70 per barrel through 2008. For the postwar U.S. economy, the ...

The oil company holds the investment opportunity to develop a delineated oilfield. The investment plan must be presented until a specific date or the oilfield rights return to the government. The firm considers a set of mutually exclusive alternatives of scale to exploit the oilfield. Larger scale means faster exploitation – increasing the present value of revenues, but also higher investment c...