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Discussion Paper Details

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

Author(s): Gideon Bornstein, Per Krusell and Sérgio Rebelo

Publication Date: May 2017

Keyword(s): commodities, Oil and volatility

Programme Area(s): International Macroeconomics and Finance and Macroeconomics and Growth

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.

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Bibliographic Reference

Bornstein, G, Krusell, P and Rebelo, S. 2017. 'Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12047