Refining the Workhorse Oil Market Model
19 Pages Posted: 8 Feb 2019 Last revised: 18 Nov 2019
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Refining the Workhorse Oil Market Model
Refining the Workhorse Oil Market Model
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: Suggested Citation