Understanding the estimation of oil demand and oil supply elasticities

  • This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

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Author:Lutz KilianGND
URN:urn:nbn:de:hebis:30:3-573874
URL:https://ssrn.com/abstract=3759333
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 649
Series (Serial Number):CFS working paper series (649)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2020
Year of first Publication:2020
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2021/01/05
Tag:Bayesian inference; IV estimation; gasoline price; oil demand elasticity; oil price; oil supply elasticity; structural VAR
Issue:August 29, 2020
Page Number:33
HeBIS-PPN:475471652
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C5 Econometric Modeling / C52 Model Evaluation and Selection
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht