Oil price elasticities and oil price fluctuations

Dario Caldara, Michele Cavallo and Matteo Iacoviello

Journal of Monetary Economics, 2019, vol. 103, issue C, 1-20

Abstract: Studies identifying oil shocks using structural vector autoregressions (VARs) reach different conclusions on the relative importance of supply and demand factors in explaining oil market fluctuations. This disagreement is due to different assumptions on the oil supply and demand elasticities that determine the identification of the oil shocks. We provide new estimates of oil-market elasticities by combining a narrative analysis of episodes of large drops in oil production with country-level instrumental variable regressions. When the estimated elasticities are embedded into a structural VAR, supply and demand shocks play an equally important role in explaining oil prices and oil quantities.

Keywords: Oil market; Oil elasticity; Vector autoregressions; Narrative analysis; Instrumental variables (search for similar items in EconPapers)
JEL-codes: C32 E32 F50 Q43 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (127)

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Related works:
Working Paper: Oil Price Elasticities and Oil Price Fluctuations (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:103:y:2019:i:c:p:1-20

DOI: 10.1016/j.jmoneco.2018.08.004

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