Five Decades of Modeling Oil Price Shocks: A Critical Review

After five decades of modeling oil price shocks, their causes and repercussions remain a question of considerable interest, both in the academic literature and the policy domain. This paper critically reviews the leading explanations of the underlying causes of oil price shocks since the 1970s. Specifically, it is intended to provide insights into the theoretical, methodological, and empirical milestones together with unresolved issues from both a historical and exploratory viewpoint. The paper also provides and discusses pathways to overcome some of the unresolved issues to aid future model formulations and policy prescriptions.