THE ROLE OF TIME‐VARYING PRICE ELASTICITIES IN ACCOUNTING FOR VOLATILITY CHANGES IN THE CRUDE OIL MARKET
Open accessAbstract
SUMMARY: There has been a systematic increase in the volatility of the real price of crude oil since 1986, followed by a decline in the volatility of oil production since the early 1990s. We explore reasons for this evolution. We show that a likely explanation of this empirical fact is that both the short‐run price elasticities of oil demand and of oil supply have declined considerably since the second half of the 1980s. This implies that small disturbances on either side of the oil market can generate large price responses without large quantity movements, which helps explain the latest run‐up and subsequent collapse in the price of oil. Our analysis suggests that the variability of oil demand and supply shocks actually has decreased in the more recent past, preventing even larger oil price fluctuations than observed in the data. Copyright © 2012 John Wiley & Sons, Ltd.
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Other recent studies relying on alternative structural models have obtained similarly large oil demand elasticity estimates ranging from -0.35 to -0.41.
“Another way of putting these results into perspective is to observe that other recent studies relying on alternative structural models have obtained similarly large oil demand elasticity estimates ranging from À0.35 to À0.41 (see, for example, Serletis et al., 2010; Bodenstein and Guerrieri, 2012; Baumeister and Peersman, 2013).”
From THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL (2014) · cites this paper as Baumeister and Peersman, 2013
Existing estimates of the short-run price elasticity of oil demand, including the structural estimates of Baumeister and Peersman (2013), ignored the role of inventories in smoothing oil consumption in response to oil supply shocks.
“Moreover, existing estimates, including the structural estimates recently provided by Baumeister and Peersman (2013), have ignored the role of inventories in smoothing oil consumption in response to oil supply shocks.”
From THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL (2014) · cites this paper as Baumeister and Peersman (2013)
Cites
THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL
Kilian, L., & Murphy, D. P. (2014) · Journal of Applied Econometrics · doi:10.1002/jae.2322 · Cited by 1,481 · cited 6× · see citing works
“…average of our median estimates of oil demand elasticity of -0.26 accords well with recent estimates derived from alternative structural models reporting elasticity estimates between -0.26 and -0.41 (Bodenstein and Guerrieri 2011, Kilian and Murphy 2011, Serletis, Timilsina, and Vasetsky 2010).”
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THE ROLE OF INVENTORIES AND SPECULATIVE TRADING IN THE GLOBAL MARKET FOR CRUDE OIL
Kilian, L., & Murphy, D. P. (2014) · Journal of Applied Econometrics · doi:10.1002/jae.2322 · Cited by 1,481 · see citing works
The Role of Speculation in Oil Markets: What Have We Learned So Far?
Fattouh, B., Kilian, L., & Mahadeva, L. (2013) · The Energy Journal · doi:10.5547/01956574.34.3.2 · Cited by 491 · see citing works
Silver prices and solar energy production
Apergis, I., & Apergis, N. (2019) · Environmental Science and Pollution Research · doi:10.1007/s11356-019-04357-1 · Cited by 25 · see citing works
- Authors
- Baumeister, C., & Peersman, G.
- Affiliations
- Bank of Canada (CA)
- Ghent University (BE)
- Corresponding author
- Peersman, Gert
- Venue
- Journal of Applied Econometrics
- Publisher
- Wiley
- Published
- 2012-06-26
- Volume
- 28
- Issue
- 7
- Pages
- 1087-1109
- ISSN
- 0883-7252 (ISSN-L)
- 1099-1255
- OpenAlex
- W2100923907
- Cited by
- 405
- References
- 1
- Citations by year
- 2026: 11 · 2025: 16 · 2024: 18 · 2023: 24 · 2022: 28 · 2021: 42 · 2020: 36 · 2019: 27 · 2018: 44 · 2017: 30 · 2016: 32 · 2015: 28 · 2014: 25 · 2013: 30 · 2012: 12
- FWCI
- 72.69
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Journal of Applied Econometrics (publishedVersion)
- Ghent University Academic Bibliography (Ghent University) (submittedVersion, other-oa)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Bank of Canada Research
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economics of Agriculture and Food Markets
- Physical Sciences › Energy › Renewable Energy, Sustainability and the Environment › Energy, Environment, and Transportation Policies
- Keywords
- oil prices, oil price volatility, oil demand elasticity, supply shocks, demand shocks, oil price collapse
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