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Small Trends and Big Cycles in Crude Oil Prices

Xiaoyi Mu and Haichun Ye
Authors registered in the RePEc Author Service: Xiaoyi Mu

The Energy Journal, 2015, vol. Volume 36, issue Number 1

Abstract: We employ an unobserved components model to disentangle the long-term trend from cyclical movements in the price of internationally traded crude oil using data from 1861 to 2010. The in-sample estimation of the model identifies a deterministic quadratic trend and two types of cycles, with the short cycle having a period of 6 years and the long cycle of 29 years. Compared to the large amplitude of the cycles, the growth rate of the long-term trend is small. The out-of-sample forecasting performance of various competing models is compared to that of a "no change" random walk forecast. While the random walk forecast tends to be the most accurate at shorter horizons, it is outperformed by the trend-cycle models at horizons longer than one year. The results provide evidence of predictability in the price of crude oil at long horizons.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2015
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