 Resource prices and planning horizonsJournal of Economic Dynamics and Control, 2014, vol. 48, issue C, 159-175 Abstract: This paper shows that a seemingly simple assumption – that agents use a rolling planning horizon – can reconcile the puzzling long run price dynamics of exhaustible resources such as oil, gas and metals. A rolling horizon has the effect of removing the scarcity consideration of resource owners when stocks are large. Hence, extraction will be non-decreasing and resource prices non-increasing for a long period of time and there will be no connection between the price growth and the interest rate – in line with the trends of a majority of exhaustible resources in the last century. A calibration of the model to the oil market yields a price which closely fits the gradually falling real oil price after WWII and the sharply increasing price after 1998. This suggests that, while long run scarcity was not an important parameter on the oil market in the 20th century, it has been important in shaping the oil price from around 1998 and onwards. Keywords: Resource extraction; Oil price; Rolling horizons; Decision-making under uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:48:y:2014:i:c:p:159-175 DOI: 10.1016/j.jedc.2014.08.002 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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