DP12047 Lags, Costs and Shocks: An Equilibrium Model of the Oil Industry

Author(s):	Gideon Bornstein, Per Krusell, Sérgio Rebelo
Publication Date:	May 2017
Date Revised:	August 2019
Keyword(s):	commodities, Oil, volatility
JEL(s):	Q4
Programme Areas:	International Macroeconomics and Finance, Macroeconomics and Growth
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12047

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.