Time-varying persistence in real oil prices and its determinant

Robinson Kruse and Christoph Wegener

Energy Economics, 2020, vol. 85, issue C

Abstract: We provide empirical evidence for pronounced time-variation in the persistence of real oil prices. In particular, we find episodes of mild explosiveness next to periods with random walk and also mean-reverting behavior. We address the question whether dynamic persistence can be directly related to macro-financial variables, spot-futures spreads, spill-over effects from commodities and global real economic activity. Alongside these variables, we use a large data set of more than one-hundred fifty potential determinants featuring, for example, further oil-related variables (production and inventories) and key macroeconomic series for the G7 countries. By using model averaging techniques, we robustly account for the inherent model uncertainty when dealing with such many potential explanatory variables. As it turns out, the one and only significant measure to explain time-varying oil price persistence is the index of global real economic activity by Kilian (2009). Other variables related to e.g. supply shocks or speculation are, however, insignificant. In line with recent findings, we argue that fundamentals rather than speculation were the drivers of the explosive oil price in the 2000s.

Keywords: Oil prices; Fundamentals; Speculation; Explosiveness; Model averaging (search for similar items in EconPapers)
JEL-codes: C22 Q02 Q43 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:85:y:2020:i:c:s0140988319300805

DOI: 10.1016/j.eneco.2019.02.020

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