Macroeconomic uncertainty and the impact of oil shocks

This paper evaluates whether macroeconomic uncertainty changes the impact of oil shocks on the oil price. Using a structural threshold VAR model, we endogenously identify different regimes of uncertainty in which we estimate the effects of oil demand and supply shocks. The results show that higher macroeconomic uncertainty, as measured by higher world industrial production volatility, significantly increases the responsiveness of oil prices to oil shocks. This implies a lower price elasticity of oil demand and supply in the uncertain regime, or in other words, that both oil curves become steeper when uncertainty is high. The difference in oil demand elasticities is both statistically and economically meaningful. Accordingly, varying uncertainty about the macroeconomy can explain time variation in the oil price elasticity and hence in oil price volatility. Also the impact of oil shocks on economic activity appears to be significantly stronger in uncertain times

Cross-Country Differences in the Effects of Oil Shocks

We compare the economic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in their economy. We find considerably different effects across countries, which crucially depend on the underlying source of the oil price shift. For oil demand shocks driven by global economic activity and oil-specific demand shocks, all countries experience respectively a temporary increase and transitory decline of real GDP following the oil price increase. The role of oil and other forms of energy seems not to matter to explain cross-country differences for the consequences of both shocks. This role, however, is very important to explain asymmetries in the effects of exogenous oil supply shocks. Whereas net oil and energy-importing countries all face a permanent fall in economic activity, the impact is insignificant or even positive in net energy-exporting countries. In addition, countries that improved their net energy-position the most over time, became less vulnerable to oil supply and oil-specific demand shocks, relative to other countries.oil prices, vector autoregressions, cross-country differences

Do financial investors destabilize the oil price?

In this paper, we assess whether and to what extent financial activity in the oil futures markets has contributed to destabilize oil prices in recent years. We define a destabilizing financial shock as a shift in oil prices that is not related to current and expected fundamentals, and thereby distorts efficient pricing in the oil market. Using a structural VAR model identified with sign restrictions, we disentangle this non-fundamental financial shock from fundamental shocks to oil supply and demand to determine their relative importance. We find that financial investors in the futures market can destabilize oil spot prices, although only in the short run. Moreover, financial activity appears to have exacerbated the volatility in the oil market over the past decade, particularly in 2007-2008. However, shocks to oil demand and supply remain the main drivers of oil price swings. JEL Classification: C32, Q41, Q31Oil Price, sign restrictions, Speculation, Structural VAR

Macroeconomic uncertainty and the impact of oil shocks

This paper evaluates whether macroeconomic uncertainty changes the impact of oil shocks on the oil price. Using a structural threshold VAR model, we endogenously identify different regimes of uncertainty in which we estimate the effects of oil demand and supply shocks. The results show that higher macroeconomic uncertainty, as measured by higher world industrial production volatility, significantly increases the responsiveness of oil prices to oil shocks. This implies a lower price elasticity of oil demand and supply in the uncertain regime, or in other words, that both oil curves become steeper when uncertainty is high. The difference in oil demand elasticities is both statistically and economically meaningful. Accordingly, varying uncertainty about the macroeconomy can explain time variation in the oil price elasticity and hence in oil price volatility. Also the impact of oil shocks on economic activity appears to be significantly stronger in uncertain times

Influence of variability in starting materials quality on stability of finished drug products: a quality-by-design factor and response

The use of ill selected excipients in drug formulations can have a significant influence on the overall stability. Therefore, evaluation of chemical and physical excipient compatibility with the API has become a major part in the development of new drug products. Moreover, general and individual limits for excipient impurities have also been set by the Ph. Eur. However, batch to batch variability of these excipient impurities, although still Ph. Eur compliant, can cause significant variability in the stability profile of finished drug product. Recently, large manufacturer and batch to batch variability in hydroperoxide levels was documented in common used pharmaceutical excipients such as povidone, polysorbate 80, PEG 400 and hydroxypropylcellulose [1]. As a result, oxidation sensitive drugs, e.g. raloxifene HCl, can demonstrate inconsistent stability profiles when combined with aforementioned excipients [2]. Another example in which a miconazole-BHT adduct is formed, can be traced back to the petrolatum vehicle, containing BHT, used for topical application [3]. Note that no BHT limits are mentioned in the corresponding Ph. Eur. monograph. We evaluated the short-term storage stability of three triple intrathecal (Triple IT) solution batches under various conditions [4]. The Triple IT solution, containing cytarabine, methotrexate and methylprednisolone (21)-sodium succinate (MPSS), is used in the treatment of leukemia, lymphoma and brain cancers. Hydrolysis of MPSS to methylprednisolone was found to be the predominant degradation reaction. However, different MPSS degradation kinetics were observed. This observation was linked to the use of different batches of MPSS starting material, i.e. Solu-Medrol®, thus providing an inconsistency in the degradation profile. References [1] Wasylaschuk, W.R.; Harmon, P.A.; Wagner, G.; Harman, A.B.; Templeton, A.C.; Xu, H.; Reed, R.A. Evaluation of hydroperoxides in common pharmaceutical excipients (2006). Journal of Pharmaceutical Sciences; 96; 106-116. [2] Hartauer, K.J; Arbuthnot, G.N.; Baertschi, S.W.; Johnson, R.A.; Luke, W.D; Pearson, N.G.; Rickard, E.C.; Tingle, C.A.; Tsang, P.K.S.; Wiens, R.E. Influence of peroxide impurities in povidone and crospovidone on the stability of raloxifene hydrochloride in tablets: identification and control of an oxidative degradation product (2000). Pharmaceutical Development and Technology; 5; 303-310. [3] Zhang, F.; Nunes, M. Structure and generation mechanism of a novel degradation product formed by oxidatively induced coupling of miconazole nitrate with butylated hydroxytoluene in a topical ointment studied by HPLC-ESI-MS and organic synthesis. [4] D’Hondt, M.; Vangheluwe, E.; Van Dorpe, S.; Boonen, J.; Bauters, T.; Pelfrene, B.; Vandenbroucke, J.; Robays, H.; De Spiegeleer, B. Stability of extemporaneously prepared Triple inthrathecal solution of cytarabine, methotrexate and methylprednisolone sodium succinate (in press). American Journal of Health-System Phamacy

Forecasting the Brent Oil Price: Addressing Time-Variation in Forecast Performance

This paper explores a range of different forecast methods for Brent oil prices and analyses their performance relative to oil futures and the random walk over the period 1995Q1 - 2015Q2, including periods of stable, upwardly trending and rapidly dropping oil prices. None of the individual methods considered outperforms either benchmark consistently over time or across forecast horizons. To address this instability, we propose a forecast combination for predicting quarterly real Brent oil prices. A four-model combination - consisting of futures, risk-adjusted futures, a Bayesian VAR and a DSGE model of the oil market - predicts oil prices more accurately compared to all methods evaluated up to 11 quarters ahead and generates forecasts whose performance is robust over time. The improvements in forecast accuracy and stability are noticeable in terms of both point forecasts – with MSPE gains of 23% relative to futures at the 11 quarter-ahead horizon and a directional accuracy of 70% – and density forecasts – with CRPS gains of 50% relative to futures and logarithmic score gains of 90%, both at the 7-quarter ahead horizon

Forecasting the Brent oil price: addressing time-variation in forecast performance

This paper demonstrates how the real-time forecasting accuracy of different Brent oil price forecast models changes over time. We find considerable instability in the performance of all models evaluated and argue that relying on average forecasting statistics might hide important information on a model`s forecasting properties. To address this instability, we propose a forecast combination approach to predict quarterly real Brent oil prices. A four-model combination (consisting of futures, risk-adjusted futures, a Bayesian VAR and a DGSE model of the oil market) predicts Brent oil prices more accurately than the futures and the random walk up to 11 quarters ahead, on average, and generates a forecast whose performance is remarkably robust over time. In addition, the model combination reduces the forecast bias and predicts the direction of the oil price changes more accurately than both benchmarks

Cross-country differences in the effects of oil shocks

We compare the economic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in their economy. We find considerably different effects across countries, which crucially depend on the underlying source of the oil price shift. For oil demand shocks driven by global economic activity and oil-specific demand shocks, all countries experience respectively a temporary increase and transitory decline of real GDP following the oil price increase. The role of oil and other forms of energy seems not to matter to explain cross-country differences for the consequences of both shocks. This role, however, is very important to explain asymmetries in the effects of exogenous oil supply shocks. Whereas net oil and energy-importing countries all face a permanent fall in economic activity, the impact is insignificant or even positive in net energy-exporting countries. In addition, countries that improved their net energy-position the most over time, became less vulnerable to oil supply and oil-specific demand shocks, relative to other countries

Oil prices, exchange rates and asset prices

This paper takes a financial market perspective in examining the relationship between oil prices, the US dollar and asset prices, and it exploits the heteroskedasticity for the identification of causality in a multifactor model. It finds a bidirectional causality between the US dollar and oil prices since the early 2000s. Moreover, both oil prices and the US dollar are significantly affected by changes in equity market returns and risk. By contrast, oil prices did not react to changes in these financial assets before 2001. The paper provides evidence that this may be explained by the increased use of oil as a financial asset over the past decade, which intensified the link between oil and other assets. The model can account well for the strong and rising negative correlation between oil prices and the US dollar since the early 2000s, with risk shocks and the financialisation process of oil prices explaining most of the strengthening of this correlation