The Econometrics of Oil Market VAR Models

Lutz Kilian and Xiaoqing Zhou

No 14460, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 identifying assumptions and methods of inference. We not only explain how the workhorse models in this literature have evolved, but also examine alternative oil market VAR models. We help the reader understand why the latter models sometimes generated unconventional, puzzling or erroneous conclusions. Finally, we discuss the construction of extraneous measures of oil demand and oil supply shocks that have been used as external or internal instruments for VAR models.

Keywords: Elasticity; Identification; Model specification; Bayesian estimation; Structural var; Textual analysis (search for similar items in EconPapers)
JEL-codes: C36 C52 Q41 Q43 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-ecm, nep-ene, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Related works:
Chapter: The Econometrics of Oil Market VAR Models (2023)
Working Paper: The Econometrics of Oil Market VAR Models (2020)
Working Paper: The Econometrics of Oil Market VAR Models (2020)
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