A Note on the Oil Price Trend and GARCH Shocks

Jing Li () and Henry Thompson

The Energy Journal, 2010, vol. Volume 31, issue Number 3, 159-166

Abstract: This paper investigates the trend in the monthly real price of oil between 1990 and 2008 with a generalized autoregressive conditional heteroskedasticity (GARCH) model. Trend and volatility are estimated jointly with the maximum likelihood estimation. There is long persistence in the variance of oil price shocks, and a GARCH unit root (GUR) test can potentially yield a significant power gain relative to the augmented Dickey-Fuller (ADF) test. After allowing for nonlinearity, the evidence supports a deterministic trend in the price of oil. The deterministic trend implies that influence of a price shock is transitory and policy efforts to restore a predictable price after a shock would be unwarranted in the long run.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (13)

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