An Oil And Gas Model
Source: International Monetary Fund
This paper formulated a short-run model, with an explicit role for monetary policy, for analyzing world oil and gas markets. The model described carefully the parameters of these markets and their vulnerability to business cycles. Estimates showed that short-run demand for oil and gas was price - inelastic, relatively income - elastic, and was influenced by interest and exchange rates; short-run supply was price - inelastic. Short-run price inelasticity could be a source for high volatility in oil and gas prices, and could confer to producers a temporary market power.