theoretical modeling

The asymmetric effects of oil shocks on output growth: A Markov–Switching analysis for the G-7 countries

Publication date:
2009-01-01
First published in:
Economic Modelling
Authors:
A. Cologni, M. Manera
Abstract:

Oil shocks are generally acknowledged to have important effects on both economic activity and macroeconomic policy. The aim of this paper is to investigate how oil price shocks affect the growth rate of output of a subset of developed countries by comparing alternative regime switching models. Different Markov–Switching (MS) regime autoregressive models are, therefore, specified and estimated. In a successive step, univariate MS models are extended in order to verify if the inclusion of asymmetric oil shocks as an exogenous variable improves the ability of each specification to identify the different phases of the business cycle for each country under scrutiny. Following the wide literature on this topic, seven different definitions of oil shocks which are able to describe oil price changes, asymmetric transformations of oil price changes, oil price volatility, and oil supply conditions are considered.

Our findings can be summarized as follows. While the introduction of different oil shock specifications is never rejected, positive oil price changes, net oil price increases and oil price volatility are the oil shock definitions which contribute to a better description of the impact of oil on output growth. In addition, models with exogenous oil variables generally outperform the corresponding univariate specifications which exclude oil from the analysis. However, a stability analysis of the coefficients across different subsamples shows that the role of oil shocks in explaining recessionary episodes has changed over time. Improvements in energy efficiency, together with a better systematic approach to external supply and demand shocks by monetary and fiscal authorities are argued to be responsible for the changing macroeconomic effects of oil shocks. Finally, the impact of G-7 countries aggregate growth on oil market conditions is considered and assessed empirically. The null hypothesis of the absence of a reverse relationship from real GDP growth to oil prices is rejected by the data.

Published in: Economic Modelling, Volume 26, Issue 1, January 2009, Pages 1-29
Available from: ScienceDirect

A Thermodynamic Theory of Economics

Publication date:
2007-06-01
First published in:
International Journal of Exergy
Authors:
J. Bryant
Abstract:

An analogy between thermodynamic and economic theories and processes is developed further, following a previous paper published by the author in 1982. Economic equivalents are set out concerning the ideal gas equation, the gas constant, pressure, temperature, entropy, work done, specific heat and the 1st and 2nd Laws of Thermodynamics. The law of diminishing marginal utility was derived from thermodynamic first principles. Conditions are set out concerning the relationship of economic processes to entropic gain. A link between the Le Chatelier principle and economic processes is developed, culminating in a derivation of an equation similar in format to that of Cobb Douglas production function, but with an equilibrium constant and a disequilibrium function added to it. A trade cycle is constructed, utilising thermodynamic processes, and equations are derived for cycle efficiency, growth and entropy gain. A thermodynamic model of a money system is set out, and an attempt is made to relate interest rates, the rate of return, money demand and the velocity of circulation to entropy gain. Aspects concerning the measurement of economic value in thermodynamic terms are discussed.

Published in: International Journal of Exergy, Volume 4, Issue 3, Pages 302-337
Available from: Inderscience Publishers
also available from: Vocat International Ltd

The limit of the statistic R/P in models of oil discovery and production

Publication date:
2008-08-01
First published in:
International Journal of Pure and Applied Mathematical Sciences
Authors:
D. Stark
Abstract:

When assessing the oil reserves of a given region, often the statistic S = R/P is used, where R denotes the amount of proven reserves in the region and P is the current rate of production. This statistic can be misleading because the rate of production typically varies over time.
We investigate a general framework for oil discovery and production and find the limit of S as time tends to infinity for several selected models.

Published in: International Journal of Pure and Applied Mathematical Sciences, accepted for print
Available from: Queen Mary, University of London

Peak production in an oil depletion model with triangular field profiles

Publication date:
2008-12-30
First published in:
Journal of Interdisciplinary Mathematics
Authors:
D. Stark
Abstract:

In this paper a model of oil depletion is analyzed in which the shapes of field profiles are triangular and the sizes of successive fields decrease monotonically. It is shown that the curve representing the rate of production for this model is piecewise linear and concave up to a certain point after which it is monotone decreasing. Equations for natural smooth approximating curves having unique maxima are derived. A related model of natural gas depletion with trapezoidal shaped field profiles is also analyzed.

Published in: Accepted in Journal of Interdisciplinary Mathematics
Available from: Queen Mary, University of London

Peak Oil: Testing Hubbert’s Curve via Theoretical Modeling

Publication date:
2008-03-01
First published in:
Natural Resources Research
Authors:
S.H. Mohr , G.M. Evans
Abstract:

A theoretical model of conventional oil production has been developed. The model does not assume Hubbert’s bell curve, an asymmetric bell curve, or a reserve-to-production ratio method is correct, and does not use oil production data as an input. The theoretical model is in close agreement with actual production data until the 1979 oil crisis, with an R 2 value of greater than 0.98. Whilst the theoretical model indicates that an ideal production curve is slightly asymmetric, which differs from Hubbert’s curve, the ideal model compares well with the Hubbert model, with R 2 values in excess of 0.95. Amending the theoretical model to take into account the 1979 oil crisis, and assuming the ultimately recoverable resources are in the range of 2–3 trillion barrels, the amended model predicts conventional oil production to peak between 2010 and 2025. The amended model, for the case when the ultimately recoverable resources is 2.2 trillion barrels, indicates that oil production peaks in 2013.

Published in: Natural Resources Research, Volume 17, Number 1 / March, 2008
Available from: Springerlink

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