Understanding the Estimation of Oil Demand and Oil Supply Elasticities

Lutz Kilian

No 15244, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the advantages and drawbacks of alternative methods of estimating oil supply and oil demand elasticities and of incorporating this information into structural VAR models. I not only summarize the state of the literature, but also draw attention to a number of econometric problems that have been overlooked in this literature. Once these problems are recognized, seemingly conflicting conclusions in the recent literature can be resolved. My analysis reaffirms the conclusion that the one-month oil supply elasticity is close to zero, which implies that oil demand shocks are the dominant driver of the real price of oil. The focus of this paper is not only on correcting some misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.

Keywords: Oil supply elasticity; Oil demand elasticity; Iv estimation; Structural var; Bayesian inference; Oil price; Gasoline price (search for similar items in EconPapers)
JEL-codes: C36 C52 Q41 Q43 (search for similar items in EconPapers)
Date: 2020-09
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 (7)

Downloads: (external link)
https://cepr.org/publications/DP15244 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Understanding the estimation of oil demand and oil supply elasticities (2022)
Working Paper: Understanding the Estimation of Oil Demand and Oil Supply Elasticities (2020)
Working Paper: Understanding the Estimation of Oil Demand and Oil Supply Elasticities (2020)
Working Paper: Understanding the estimation of oil demand and oil supply elasticities (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15244

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15244

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().