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Working Paper
The Econometrics of Oil Market VAR Models
Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact in the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the ...
Working Paper
Facts and Fiction in Oil Market Modeling
A series of recent articles has called into question the validity of VAR models of the global market for crude oil. These studies seek to replace existing oil market models by structural VAR models of their own based on different data, different identifying assumptions, and a different econometric approach. Their main aim has been to revise the consensus in the literature that oil demand shocks are a more important determinant of oil price fluctuations than oil supply shocks. Substantial progress has been made in recent years in sorting out the pros and cons of the underlying econometric ...
Working Paper
Exporting and Pollution Abatement Expenditure: Evidence from Firm-Level Data
The relevance of analyzing whether exporting firms engage in greater pollution abatement cannot be overemphasized. For instance, the question relates to the possibility of export promotion policies being environmentally beneficial. In fact, the issue is especially relevant for developing countries typically characterized by ineffective environmental regulation. However, despite the significance of the topic, the extant literature examining the environmental consequences of firm-level trade is skewed toward developed countries. Moreover, the existing contributions rarely attend to concerns ...
Working Paper
The Effects of Competition in the Retail Gasoline Industry
We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the ...
Working Paper
The Income Share of Energy and Substitution: A Macroeconomic Approach
As the atmospheric concentration of CO2 emissions has grown to record levels, callshave grown for governments to make steeper emissions cuts, requiring to reduce an economy’s use of fossil energy dramatically. Meanwhile, in the U.S., fossil energy still met 80percent of the total energy demand as of 2019. This paper examines U.S. energy dependence, measured by its factor share, using a simple neoclassical framework in a systematicway. We find that with empirically plausible differences in substitution elasticities, particularly with a time-varying substitution elasticity between equipment ...
Journal Article
Drilling Productivity in the United States: What Lies Beneath
We construct new measures of drilling productivity and find that productivity increased sixfold from the mid-2000s to early 2017. Gains in below-ground efficiency?the number of barrels produced per foot of drilled wells?have largely driven this increase in overall productivity. The large oil price declines during the Great Recession and from 2014 to 2016 also played a role. However, further large increases in productivity are unlikely absent additional improvements in technology or a subsequent large downturn in oil prices.
Working Paper
What Fuels the Volatility of Electricity Prices?
We use emergency outages of coal generators as an exogenous source of variation in the power generation stack to study how changes in marginal fuel affect real-time prices. Contrary to anecdotal evidence, we find that wholesale prices are less volatile when natural gas is on the margin more often.
Journal Article
The Evolving Link between Oil Prices and U.S. Consumer Spending
Oil prices have fluctuated widely since the 1970s. Historically, consumers have tended to increase spending on non-oil goods and services when oil prices decline and cut back on such spending when oil prices rise. However, this relationship may have changed more recently. The U.S. oil sector has increased in importance in the last decade, and consequently the United States has become less reliant on oil imports. Moreover, gasoline expenditures have fallen as a share of households’ budgets. As a result, price swings may no longer have the same effect on U.S. consumption.Nida Çakır Melek ...
Journal Article
Evaluating a Year of Oil Price Volatility
Troy Davig, Nida Cakir Melek, Jun Nie, Lee Smith, and Didem Tuzemen find changes in expectations of future oil supply relative to demand are the main drivers of the recent oil price decline.