Facts and Fiction in Oil Market Modeling

46 Pages Posted: 31 Oct 2019

See all articles by Lutz Kilian

Lutz Kilian

Federal Reserve Banks - Federal Reserve Bank of Dallas; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: 2019

Abstract

Baumeister and Hamilton (2019a) assert that every critique of their work on oil markets by Kilian and Zhou (2019a) is without merit. In addition, they make the case that key aspects of the economic and econometric analysis in the widely used oil market model of Kilian and Murphy (2014) and its precursors are incorrect. Their critiques are also directed at other researchers who have worked in this area and, more generally, extend to research using structural VAR models outside of energy economics. The purpose of this paper is to help the reader understand what the real issues are in this debate. The focus is not only on correcting important misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Keywords: oil supply elasticity, oil demand elasticity, IV estimation, structural VAR, Bayesian inference, oil price, global real activity

JEL Classification: Q430, Q410, C360, C520

Suggested Citation

Kilian, Lutz, Facts and Fiction in Oil Market Modeling (2019). CESifo Working Paper No. 7902, Available at SSRN: https://ssrn.com/abstract=3477715 or http://dx.doi.org/10.2139/ssrn.3477715

Lutz Kilian (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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