Review of Economic Studies Vol. 90 No. 1 2023

A World Equilibrium Model of the Oil Market

Gideon Bornstein¹; Per Krusell²; Sergio Rebelo³

¹ Wharton School, University of Pennsylvania · ² Institute for International Economic Studies, NBER, and CEPR · ³ Northwestern University, NBER, and CEPR

Abstract

We use new, comprehensive micro data on oil fields to build and estimate a structural model of the oil industry embedded in a general equilibrium model of the world economy. In the model, firms that belong to Organization of the Petroleum Exporting Countries (OPEC) act as a cartel. The remaining firms are a competitive fringe. We use the model to study the macroeconomic impact of the advent of fracking. Fracking weakens the OPEC cartel, leading to a large long-run decline in oil prices. Fracking also reduces the volatility of oil prices in the long run because fracking firms can respond more quickly to changes in oil demand.

DOI

10.1093/restud/rdac019

Volume

90

Issue

1

Pages

132-164

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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