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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 ...
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 ...
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
The Shale Revolution and the Dynamics of the Oil Market
We build and estimate a dynamic, structural model of the world oil market in order to quantify the impact of the shale revolution. We model the shale revolution as a dramatic decrease in shale production costs and explore how the resultant increase in shale production affects the level and volatility of oil prices over our sample. We find that oil prices in 2018 would have been roughly 36% higher had the shale revolution not occurred and that the shale revolution implies a reduction in current oil price volatility around 25% and a decline in long-run volatility of over 50%.
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.
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.
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 ...
Working Paper
Understanding the Estimation of Oil Demand and Oil Supply Elasticities
This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the ...
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 ...