| Effects of Oil Supply News on Korean GDP, Prices and Net Exports: A Proxy FAVAR Approach |
Cheol-Keun Cho, 1 Myunghyun Kim, 2 |
1University of Ulsan, Ulsan, Republic of Korea
2Sungkyunkwan University, Seoul, Republic of Korea |
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Corresponding Author:
Myunghyun Kim ,Email: mhkim7812@skku.edu |
| Copyright ©2025 The Journal of Economic Integration |
| ABSTRACT |
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We consider a proxy FAVAR (Factor-Augmented Vector Autoregression) model to analyze the impact of an oil supply news shock on the Korean economy. To identify an oil supply news shock, we use the variation in oil futures prices around OPEC production announcements as a proxy. Moreover, we include a factor that captures the common movement of many Korean macro variables such as various price indices and investment. The estimation results of the proxy FAVAR model show that an oil supply news shock increases the real oil price and the US CPI, and decreases world oil production and US GDP. As for Korean macro variables, GDP and net exports fall and CPI increases in response to the shock.
JEL Classification
E31: Price Level; Inflation; Deflation
E32: Business Fluctuations; Cycles
Q43: Energy and the Macroeconomy |
| Keywords:
external instruments | factor | high-frequency data | OPEC | oil supply news shocks
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