Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry

55 Pages Posted: 15 May 2017

See all articles by Gideon Bornstein

Gideon Bornstein

Northwestern University

Per Krusell

Princeton University - Department of Economics; Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR)

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017

Abstract

We use a new micro data set to compile some key facts about the oil market and estimate a structural industry equilibrium model that is consistent with these facts. We find that demand and supply shocks contribute equally to the volatility of oil prices but that the volatility of investment by oil firms is driven mostly by demand shocks. Our model predicts that the advent of fracking will eventually result in a large reduction in oil price volatility.

Keywords: commodities, Oil, volatility

JEL Classification: Q4

Suggested Citation

Bornstein, Gideon and Krusell, Per L. and Tavares Rebelo, Sergio, Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry (May 2017). CEPR Discussion Paper No. DP12047. Available at SSRN: https://ssrn.com/abstract=2968388

Gideon Bornstein (Contact Author)

Northwestern University ( email )

Per L. Krusell

Princeton University - Department of Economics ( email )

111 Fisher Hall
Princeton, NJ
United States
609-258-4003 (Phone)
609-258-6419 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 0 8 16 30 73 (Phone)
+46 0 8 16 41 77 (Fax)

HOME PAGE: http://rincewind.iies.su.se/%7Ekrusell/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Leverone Hall
Evanston, IL 60208
United States
847-467-2329 (Phone)
847-491-5719 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
0
Abstract Views
131
PlumX Metrics