Three Epochs of Oil

59 Pages Posted: 3 May 2009 Last revised: 6 May 2009

See all articles by Eyal Dvir

Eyal Dvir

Charles River Associates (CRA) - Competition Practice

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 2009

Abstract

We test for changes in price behavior in the longest crude oil price series available (1861-2008). We find strong evidence for changes in persistence and in volatility of price across three well defined periods. We argue that historically, the real price of oil has tended to be highly persistent and volatile whenever rapid industrialization in a major world economy coincided with uncertainty regarding access to supply. We present a modified commodity storage model that fully incorporates demand, and further can accommodate both transitory and permanent shocks. We show that the role of storage when demand is subject to persistent growth shocks is speculative, instead of its classic mitigating role. This result helps to account for the increased volatility of oil price we observe in these periods.

Suggested Citation

Dvir, Eyal and Rogoff, Kenneth S., Three Epochs of Oil (April 2009). NBER Working Paper No. w14927. Available at SSRN: https://ssrn.com/abstract=1397925

Eyal Dvir

Charles River Associates (CRA) - Competition Practice ( email )

200 Clarendon St
Boston, MA 02116
United States
617-425-3699 (Phone)

Kenneth S. Rogoff (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Room 232
Cambridge, MA 02138
United States
617-495-4022 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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