We show that crude oil production from existing wells in Texas does not respond to current or expected future oil prices, contradicting a basic prediction of Hotelling’s (1931) canonical model of exhaustible resource extraction. In contrast, the drilling of new wells exhibits a strong price response, as does the rental rate on drilling rigs. To explain these observations, we reformulate Hotelli...

Traditional approaches to structural interpretation of vector autoregressions can be viewed as special cases of Bayesian inference arising from very strong prior beliefs about certain aspects of the model. These traditional methods can be generalized with a less restrictive Bayesian formulation that allows the researcher to summarize uncertainty coming not just from the data but also uncertaint...

This paper examines how the interaction between inflation expectations and nominal and real macroeconomic variables has evolved for the United Kingdom over the post-WWII period until 2007. We model time-variation through a Markov switching structural vector autoregressive framework with variants of the sign restriction identification scheme to back out the time-varying effect of different struc...

My paper is the first to provide long-term evidence on the dynamic effects of supply and demand shocks on mineral commodity prices. I explore a new annual data-set on prices and production of copper, lead, tin, zinc, and crude oil from 1840 to 2010. Long-term price fluctuations are mainly driven by persistent “world output-driven demand shocks” and “other demand shocks”. Historical accounts of ...

This study seeks to explain why crude oil prices fluctuate, the main cause being the quota regime, which characterises the OPEC agreements. Given that the Saudi oil supply is inelastic in the short term, a shock in the oil market is accommodated by an immediate price change. In contrast, a dominant firm behaviour in the long term causes an output change, which is accompanied by a smaller price ...

A considerable body of economic literature shows the adverse economic impacts of oil-price shocks for the developed economies. However, there has been a lack of empirical study of this kind on China and other developing countries. This paper attempts to fill this gap by answering how and to what extent oil-price shocks impact China’s economy, emphasizing on the price transmission mechanisms. To...

This paper explores similarities and differences between the run-up of oil prices in 200708 and earlier oil price shocks, looking at what caused the price increase and what effects it had on the economy. Whereas historical oil price shocks were primarily caused by physical disruptions of supply, the price run-up of 2007-08 was caused by strong demand confronting stagnating world production. Alt...

Using a sample of monthly observations of both a 12-category group and a 203-category group of personal consumption expenditures, we furnish evidence that relative price variability is positively related to both the inflation rate and inflation variability. The relation is robust to oil-price shocks.  2000 Elsevier Science S.A. All rights reserved.

Interest in nominal GDP (NGDP) targeting has come in the context of large advanced economies. Developing countries are better suited for it, however, in light of big supply shocks and terms of trade shocks, such as monsoon rains and oil import price shocks in the case of India. Under annual inflation targeting (IT), the full impact of adverse supply shocks is felt as lost real GDP. NGDP targeti...