Working Paper: NBER ID: w23423
Authors: Gideon Bornstein; Per Krusell; Sergio Rebelo
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 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.
Keywords: oil market; fracking; OPEC; general equilibrium model; macroeconomic impact
JEL Codes: Q4; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fracking (L71) | lower oil prices (Q31) |
| fracking (L71) | less price volatility (G13) |
| fracking (L71) | increased elasticity of supply (J20) |
| fracking (L71) | higher correlation between oil prices and investment (G31) |