Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/216549 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8153
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Oil market VAR models have become the standard tool for understanding the evolution of the real price of oil and its impact in the macro economy. As this literature has expanded at a rapid pace, it has become increasingly difficult for mainstream economists to understand the differences between alternative oil market models, let alone the basis for the sometimes divergent conclusions reached in the literature. The purpose of this survey is to provide a guide to this literature. Our focus is on the econometric foundations of the analysis of oil market models with special attention to the identifying assumptions and methods of inference. We not only explain how the workhorse models in this literature have evolved, but also examine alternative oil market VAR models. We help the reader understand why the latter models sometimes generated unconventional, puzzling or erroneous conclusions. Finally, we discuss the construction of extraneous measures of oil demand and oil supply shocks that have been used as external or internal instruments for VAR models.
Subjects: 
identification
model specification
elasticity
Bayesian estimation
structural VAR
instruments
textual analysis
JEL: 
Q43
Q41
C36
C52
Document Type: 
Working Paper
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