Global economic activity and crude oil prices: A cointegration analysis

Yanan He, Shouyang Wang and Kin Keung Lai

Energy Economics, 2010, vol. 32, issue 4, 868-876

Abstract: This paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity. The Kilian economic index is used as an indicator of global economic activity. Based on a supply-demand framework and the cointegration theory, we find that real futures prices of crude oil are cointegrated with the Kilian economic index and a trade weighted US dollar index, and crude oil prices are influenced significantly by fluctuations in the Kilian economic index through both long-run equilibrium conditions and short-run impacts. We also develop an empirically stable, data-coherent and single-equation error-correction model (ECM) which has sensible economic properties. Empirical results based on the ECM show that the adjustment implied by a permanent change in the Kilian economic index is a relatively drawn-out process.

Keywords: Global; economic; activity; Crude; oil; prices; Kilian; economic; index; Cointegration; ECM (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (105)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:32:y:2010:i:4:p:868-876

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