NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Gideon Bornstein, Per Krusell, Sergio Rebelo

NBER Working Paper No. 23423
Issued in May 2017
NBER Program(s):EFG

We use a new micro data set to compile some key facts about the oil market and estimate a structural industry equilibrium model that is consistent with these facts. We find that demand and supply shocks contribute equally to the volatility of oil prices but that the volatility of investment by oil firms is driven mostly by demand shocks. Our model predicts that the advent of fracking will eventually result in a large reduction in oil price volatility.

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Document Object Identifier (DOI): 10.3386/w23423

 
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