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Modelling oil consumption in Baumeister and Hamilton’s (2019) model of the global oil market

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  • Rubaszek, Michał
  • Szafranek, Karol

Abstract

We propose a refinement of the imprecise approximation of the oil consumption growth rate used by Baumeister and Hamilton (2019) in their model of the global oil market. Our modification involves replacing the first difference of global oil inventories by the second difference, which denotes changes in the addition to inventory stock. Accounting for our approximation and updating the sample reduces the short-run price elasticity of oil supply and the contribution of oil supply shocks to oil price fluctuations, aligning the conclusions from the Baumeister and Hamilton’s (2019) model with the consensus in the literature that the supply elasticity is close to zero and that oil demand shocks are the most important driver of oil price fluctuations.

Suggested Citation

  • Rubaszek, Michał & Szafranek, Karol, 2025. "Modelling oil consumption in Baumeister and Hamilton’s (2019) model of the global oil market," Economics Letters, Elsevier, vol. 248(C).
    • Handle: RePEc:eee:ecolet:v:248:y:2025:i:c:s0165176525000539
    DOI: 10.1016/j.econlet.2025.112216
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    More about this item

    Keywords

    Crude oil market; Structural VAR; Supply and demand elasticities; Supply and demand shocks;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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