A World Equilibrium Model of the Oil Market

Gideon Bornstein, Per Krusell & Sergio Rebelo
Working Paper 23423
DOI 10.3386/w23423
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We use new, comprehensive micro data on oil fields to build and estimate a structural model of the oil industry embedded in a general equilibrium model of the world economy. In the model, firms that belong to OPEC act as a cartel. The remaining firms are a competitive fringe. We use the model to study the macroeconomic impact of the advent of fracking. Fracking weakens the OPEC cartel, leading to a large long-run decline in oil prices. Fracking also reduces the volatility of oil prices in the long run because fracking firms can respond more quickly to changes in oil demand.

Published Versions

Gideon Bornstein & Per Krusell & Sergio Rebelo, 2023. "A World Equilibrium Model of the Oil Market," The Review of Economic Studies, vol 90(1), pages 132-164.

Related

Topics

Environmental and Resource Economics
Energy

Programs

Economic Fluctuations and Growth

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