The Three Epochs of Oil

Eyal Dvir (Boston College) and Kenneth S. Rogoff (Harvard)

We …nd strong evidence for changes in real oil price persistence and volatility across three well de…ned periods since 1861. We argue that historically, the real price of oil has tended to be highly persistent and volatile whenever rapid industrialization has coincided with uncertainty regarding access to supply. We extend the commodity storage model to incorporate both transitory and permanent demand shocks. When demand is subject to persistent growth shocks and supply is restricted, the role of storage is shown to be speculative, instead of its classic mitigating role. This is consistent with price persistence and volatility co-moving, as observed. - THE THREE EPOCHS OF OIL

http://mrzine.monthlyreview.org/