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A Linear Rational Expectations Equilibrium Model of the American Petroleum Industry

  • Sophia P. Dimelis
  • Tryphon Kollintzas
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 322)

Abstract

This paper develops and estimates a model of the American petroleum industry. The model accounts for the storable and exhaustible nature of petroleum as well as the strategic interaction of agents operating in the stochastic environment of the markets for crude and refined petroleum products. The linear rational expectations modelling framework is adopted. The formulation and the econometric specification of the model are motivated by a statistical and vector autoregression analysis of the annual data for the post World War II period. The parameter estimates of the model over that period conform to the model’s restrictions. In addition, the overall fit of the model judged from the usual diagnostic statistics seems to be relatively good. Important findings of this empirical test are: a not too inelastic domestic demand for refined petroleum products; a marginal cost of domestic crude petroleum production that is an increasing function of cumulative production (exhaustibility), evidence of production smoothing inventory behavior; fast inventory adjustment to desired inventory levels; and finally, upward sloping foreign supplies of crude and refined petroleum products.

Keywords

Petroleum Product Rational Expectation Adjustment Cost Marginal Significance Cumulative Production 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag, New York, Inc. 1989

Authors and Affiliations

  • Sophia P. Dimelis
    • 1
  • Tryphon Kollintzas
    • 2
  1. 1.Athens School of Economics and BusinessGreece
  2. 2.University of PittsburghUSA

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