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Journal Article
Evaluating a Year of Oil Price Volatility
Troy Davig, Nida ak?r Melek, Jun Nie, Lee Smith, and Didem Tzemen find changes in expectations of future oil supply relative to demand are the main drivers of the recent oil price decline.
AUTHORS: Cakir Melek, Nida; Nie, Jun; Tuzemen, Didem; Davig, Troy A.; Smith, Andrew Lee
DATE: 2015-07
Journal Article
The Response of U.S. Investment to Oil Price Shocks: Does the Shale Boom Matter?
After an unprecedented decline from 2014 to 2016, the real price of oil more than doubled, renewing interest in the effects of oil price fluctuations on the U.S. economy. The oil sector has become increasingly important to the U.S. economy over the past decade, and total U.S. business fixed investment appears to have followed oil investment?s pattern in recent years. This positive correlation between oil prices and U.S. investment growth may be related to the surge in U.S. oil production known as the shale boom. {{p}} Nida ak?r Melek explores the effect of unexpected oil price changes (or ?shocks?) on U.S. investment and examines whether this effect changed after the shale boom. She finds that U.S. investment has become more responsive to demand shocks and less responsive to oil supply shocks since the shale boom. In addition, she finds that oil investment has become more responsive to oil supply and demand shocks since the boom. Her results suggest that the shale boom led to greater spillovers from the oil sector to the aggregate economy.
AUTHORS: Cakir Melek, Nida
DATE: 2018-10
Journal Article
What Could Resurging U.S. Energy Production Mean for the U.S. Trade Deficit?
AUTHORS: Cakir Melek, Nida; Nie, Jun
DATE: 2018-03
Working Paper
Refining the Workhorse Oil Market Model
The Kilian and Murphy (2014) structural vector autoregressive model has become the workhorse model for the analysis of oil markets. I explore various refinements and extensions of this model, including the effects of (1) correcting an error in the measure of global real economic activity, (2) explicitly incorporating narrative sign restrictions into the estimation, (3) relaxing the upper bound on the impact price elasticity of oil supply, (4) evaluating the implied posterior distribution of the structural models, and (5) extending the sample. I demonstrate that the substantive conclusions of Kilian and Murphy (2014) are largely unaffected by these changes.
AUTHORS: Zhou, Xiaoqing
DATE: 2019-09-06
Working Paper
Facts and Fiction in Oil Market Modeling
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.
AUTHORS: Kilian, Lutz
DATE: 2019-09-06
Working Paper
Formative Experiences and the Price of Gasoline
An individual?s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent neg-ative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 sig-nificantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public tran-sit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous in-come and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.
AUTHORS: Severen, Christopher; van Benthem, Arthur
DATE: 2019-09-18
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 identifying assumptions and methods of inference. We not only explain how the workhorse models in this literature have evolved, but also examine alternative oil market VAR models. We help the reader understand why the latter models sometimes generated unconventional, puzzling or erroneous conclusions. Finally, we discuss the construction of extraneous measures of oil demand and oil supply shocks that have been used as external or internal instruments for VAR models.
AUTHORS: Kilian, Lutz; Zhou, Xiaoqing
DATE: 2020-03-06