Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry

Bornstein, Gideon; Krusell, Per; Rebelo, Sergio T.

Purchase - $8 CEPR Subscribers Download

Add Paper to My Library

Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry

CEPR Discussion Paper No. DP12047

55 Pages Posted: 15 May 2017

See all articles by Gideon Bornstein

Per Krusell

Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

There are 2 versions of this paper

Date Written: May 2017

Abstract

We use a new micro data set to compile some key facts about the oil market and estimate a structural industry equilibrium model that is consistent with these facts. We find that demand and supply shocks contribute equally to the volatility of oil prices but that the volatility of investment by oil firms is driven mostly by demand shocks. Our model predicts that the advent of fracking will eventually result in a large reduction in oil price volatility.

Keywords: commodities, Oil, volatility

JEL Classification: Q4

Suggested Citation: Suggested Citation

Bornstein, Gideon and Krusell, Per L. and Tavares Rebelo, Sergio, Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry (May 2017). CEPR Discussion Paper No. DP12047, Available at SSRN: https://ssrn.com/abstract=2968388