Refining the Workhorse Oil Market Model

19 Pages Posted: 8 Feb 2019 Last revised: 18 Nov 2019

See all articles by Xiaoqing Zhou

Xiaoqing Zhou

Federal Reserve Banks - Federal Reserve Bank of Dallas

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Date Written: September 6, 2019

Abstract

The Kilian and Murphy (2014) structural vector autoregressive model has become the workhorse model for the analysis of oil markets. I explore various refinements and extensions of this model, including the effects of (1) correcting an error in the measure of global real economic activity, (2) explicitly incorporating narrative sign restrictions into the estimation, (3) relaxing the upper bound on the impact price elasticity of oil supply, (4) evaluating the implied posterior distribution of the structural models, and (5) extending the sample. I demonstrate that the substantive conclusions of Kilian and Murphy (2014) are largely unaffected by these changes.

Keywords: Oil Market; Global Real Activity; Structural VAR; Narrative Sign Restrictions; Identification; Bayesian Inference

JEL Classification: C32; C52; Q41; Q43

Suggested Citation

Zhou, Xiaoqing, Refining the Workhorse Oil Market Model (September 6, 2019). Available at SSRN: https://ssrn.com/abstract=3323885 or http://dx.doi.org/10.2139/ssrn.3323885

Xiaoqing Zhou (Contact Author)

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

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

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