Facts and Fiction in Oil Market Modeling

47 Pages Posted: 17 Oct 2019

See all articles by Lutz Kilian

Lutz Kilian

University of Michigan at Ann Arbor - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2019

Abstract

Baumeister and Hamilton (2019a) assert that every critique of their work on oil markets by Kilian and Zhou (2019a) is without merit. In addition, they make the case that key aspects of the economic and econometric analysis in the widely used oil market model of Kilian and Murphy (2014) and its precursors are incorrect. Their critiques are also directed at other researchers who have worked in this area and, more generally, extend to research using structural VAR models outside of energy economics. The purpose of this paper is to help the reader understand what the real issues are in this debate. The focus is not only on correcting important misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Keywords: Bayesian inference, global real activity, IV estimation, Oil demand elasticity, oil price, oil supply elasticity, structural VAR

JEL Classification: C36, C52, Q41, Q43

Suggested Citation

Kilian, Lutz, Facts and Fiction in Oil Market Modeling (October 2019). CEPR Discussion Paper No. DP14047. Available at SSRN: https://ssrn.com/abstract=3471241

Lutz Kilian (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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