A Simultaneous Equations Model for World Crude Oil and Natural Gas Markets

Noureddine Krichene

No 2005/032, IMF Working Papers from International Monetary Fund

Abstract: A model for world crude oil and natural gas markets is estimated. It confirms low price and high income elasticities of demand for both crude oil and natural gas, which explains the market power of oil producers and price volatility following shocks. The paper establishes a relationship between oil prices, changes in the nominal effective exchange rate (NEER) of the U.S. dollar, and the U.S. interest rates, thereby identifying demand shocks arising from monetary policy. Both interest rates and the NEER are shown to influence crude prices inversely. The results imply that crude oil prices should be included in the policy rule equation of an inflation targeting model.

Keywords: WP; price; crude oil (search for similar items in EconPapers)
Pages: 24
Date: 2005-02-01
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Citations: View citations in EconPapers (66)

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