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A Simultaneous Equation Model for World Crude Oil and Natural Gas Markets

Author/Editor: Krichene, Noureddine
Authorized for Distribution: February 1, 2005
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: A model for world crude oil and natural gas markets is estimated. It confirms low price and high income elasticities of demand for both crude oil and natural gas, which explains the market power of oil producers and price volatility following shocks. The paper establishes a relationship between oil prices, changes in the nominal effective exchange rate (NEER) of the U.S. dollar, and the U.S. interest rates, thereby identifying demand shocks arising from monetary policy. Both interest rates and the NEER are shown to influence crude prices inversely. The results imply that crude oil prices should be included in the policy rule equation of an inflation targeting model.
 
Series: Working Paper No. 05/32
Subject(s): Natural gas | Energy sector | Markets | Investment | Oil prices | Interest rates | Economic models
Author's keyword(s): Crude Oil | Natural gas | Prices | Output | Demand | Supply | Elasticities | Interest rates | Nominal effective exchange rate | Impulse responses
 
English  
    Published:   February 1, 2005        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2005032   Pages:   24
    Price:   US$15.00
       
     
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