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Abstract

What is the role of Önancial speculation in determining the real oil price? We Önd that while macroeconomic shocks have been the major upward driver of the real oil price since the mid 1980s, Önancial shocks have also sizably contributed since early 2000s, and at a much larger extent since mid 2000s. Despite Önancial shocks contributed with 44% out of the 65% real oil price increase over the period 2004-2010, the third oil price shock was a macro-Önancial episode: macroeconomic shocks actually largely accounted for the 2007-2008 oil price swing. While we then Önd support to the demand side view of real oil price determination, we also Önd a much larger role for Önancial shocks than previously noted in the literature.

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