One of the main drawbacks of the existing oscillation damping controllers that are designed based on offline dynamic models is adaptivity to the power system operating condition. With the increasing availability of wide-area measurements and the rapid development of system identification techniques, it is possible to identify a measurement-based transfer function model online that can be used to tune the oscillation damping controller. Such a model could capture all dominant oscillation modes for adaptive and coordinated oscillation damping control. This paper describes a comprehensive approach to identify a low-order transfer function model of a power system using a multi-input multi-output (MIMO) autoregressive moving average exogenous (ARMAX) model. This methodology consists of five steps: 1) input selection; 2) output selection; 3) identification trigger; 4) model estimation; and 5) model validation. The proposed method is validated by using ambient data and ring-down data in the 16-machine 68-bus Northeast Power Coordinating Council system. The results demonstrate that the measurement-based model using MIMO ARMAX can capture all the dominant oscillation modes. Compared with the MIMO subspace state space model, the MIMO ARMAX model has equivalent accuracy but lower order and improved computational efficiency. The proposed model can be applied for adaptive and coordinated oscillation damping control.