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

63 Pages Posted: 24 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 that covers all oil fields in the world to estimate a stochastic industry-equilibrium model of the oil industry with two alternative market structures. In the first, all firms are competitive. In the second, OPEC firms act as a cartel. This effort is a first step towards studying the importance of ongoing structural changes in the oil market in a general-equilibrium model of the world economy. We analyze the impact of the advent of fracking on the volatility of oil prices. Our model predicts a large decline in this volatility.

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). NBER Working Paper No. w23423. Available at SSRN: https://ssrn.com/abstract=2971820

Gideon Bornstein (Contact Author)

Northwestern University ( email )

Per L. Krusell

Princeton University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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