Xiaoyi Mu

Understanding the Crude Oil Price: How Important Is the China Factor?

This paper employs monthly data on Chinas net oil import from January 1997 to June 2010 to assess the role of Chinas net import in the evolution of the crude oil price. Based on a vector autoregression (VAR) analysis, we find that the growth of Chinas net oil import has no significant impact on monthly oil price changes and there is no Granger causality between the two variables. The historical decomposition indicates that shocks to Chinas oil demand have only played a small role in the oil price run-up of 2002-2008. We also calculate the price changes implied by Chinas net oil import growth from a longer-term supply and demand shift perspective.

Investment spikes and uncertainty in the petroleum refining industry

This paper investigates the effect of uncertainty on the investment decisions of petroleum refineries in the US. We construct uncertainty measures from commodity futures market and use data on actual capacity changes to measure investment episodes. Capacity changes in US refineries occur infrequently and a small number of investment spikes account for a large fraction of the change in industry capacity. Given the lumpy nature of investment adjustment in this industry, we empirically model the investment process using hazard models. An increase in uncertainty decreases the probability a refinery adjusts its capacity. The results are robust to various investment thresholds. Our findings lend support to theories that emphasize the role of irreversibility in investment decisions.

CURRENT ACCOUNT ADJUSTMENT IN DEVELOPING COUNTRIES: THE ROLE OF EXCHANGE RATE REGIMES

This article employs hazard models to investigate the role of exchange rate regimes in the timing of current account adjustment in developing countries. We identify high current account deficit spells and find that fixed exchange rate regimes increase the duration of high deficit spells and thus delay current account adjustment. The result is robust to a variety of model specifications and alternative classifications of exchange rate regimes. When distinguishing between hard pegs and soft pegs, we notice that the delay in the current account adjustment is primarily driven by hard pegs rather than soft pegs.

The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.