We develop two measures of exogenous oil-price shocks for the period 1984 to 2006 based on market commentaries on daily oil-price fluctuations. Our measures are based on exogenous events that trigger substantial fluctuations in spot oil prices and are constructed to be free of endogenous and anticipatory movements. We find that the dynamic responses of output and prices implied by these measures are “well-behaved,” and that the response of output is larger than the one implied by a conventional measure of oil-price shocks proposed in the literature. We then present a dynamic general-equilibrium model and ask whether it can account for the response of key macroeconomic variables to our oil-price shocks.
