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The figure is normalized so that the real oil price in 2011 equals 104. This makes the units intuitive, given that the average 2011 nominal oil price equalled US$ 104. The same normalization is adopted in all subsequent charts of the real oil price.
This involves an important technical consideration: Excessively fast extraction of oil from an existing field can destroy geological structures and reduce the ultimately recoverable quantity of oil. See Simmons (2005).
The units of the coefficients are affected by the fact that in our data qt and Qt are expressed in different units.
There are grounds for doubt as to whether long-run elasticities can continue to be much higher than short-run elasticities. See the discussion in Section IV.E.
To keep the exposition simple this is not shown in (6).
The actual trend does show a positive deviation from the no-shocks scenario. The main reason is unexpectedly strong demand from emerging economies post-2002.
See the IEA website at http://www.worldenergyoutlook.org/quotes.asp for a collection of Birol’s recent quotes on this subject.
We will not emphasize the RMSE differences for GDP further in this paper, partly because this result may have less to do with our modeling of the oil sector and more with our modeling of the different component processes of output.
For the U.S. economy the historical cost share of total energy has been around 7%.
This book describes the major energy transitions in world history, from biomass to coal, oil and nuclear energy. The critical observation is that all these transitions took many decades to complete, were enormously expensive and, crucially, happened at times when a new major energy resource of sufficient scale had already been clearly identified. The latter is clearly not the case today, as renewables are not even nearly of sufficient scale.