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Modeling for the World Crude Oil and Natural Gas Markets

Discussion Papers

No.584

March 2016

ABSTRACT

Crude oil and natural gas have been essential energy sources and play a crucial role in the world economy. Changes in energy prices significantly impact economic growth. This study builds an econometric model to illustrate the substitute relation between crude oil and natural gas markets. Additionally, the determination of the oil and natural gas prices are endogenized, assuming imperfect competition to reflect a real market strategy. Our empirical results show that the overall performance of this system is acceptable, and the model can be applied to policy analysis for determining monetary or energy policy by introducing this model to the more comprehensive system.

Keywords: Demand–supply, imperfect competition, econometric model
JEL classification: C30, Q41

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