Facts and Fiction in Oil Market Modeling

Lutz Kilian

No 1907, Working Papers from Federal Reserve Bank of Dallas

Abstract: A series of recent articles has called into question the validity of VAR models of the global market for crude oil. These studies seek to replace existing oil market models by structural VAR models of their own based on different data, different identifying assumptions, and a different econometric approach. Their main aim has been to revise the consensus in the literature that oil demand shocks are a more important determinant of oil price fluctuations than oil supply shocks. Substantial progress has been made in recent years in sorting out the pros and cons of the underlying econometric methodologies and data in this debate, and in separating claims that are supported by empirical evidence from claims that are not. The purpose of this paper is to take stock of the VAR literature on global oil markets and to synthesize what we have learned. Combining this evidence with new data and analysis, I make the case that the concerns regarding the existing VAR oil market literature have been overstated and that the results from these models are quite robust to changes in the model specification.

Keywords: Elasticity; structural VAR; Bayesian inference; oil price; global real activity; oil inventories (search for similar items in EconPapers)
JEL-codes: C36 C52 Q41 Q43 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2019-09-06, Revised 2020-12-21
New Economics Papers: this item is included in nep-ene and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Facts and fiction in oil market modeling (2022)
Working Paper: Facts and fiction in oil market modeling (2021)
Working Paper: Facts and Fiction in Oil Market Modeling (2019)
Working Paper: Facts and Fiction in Oil Market Modeling (2019)
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DOI: 10.24149/wp1907r1

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