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The relationship between regional natural gas markets and crude oil markets from a multi-scale nonlinear Granger causality perspective

Jiang-Bo Geng, Qiang Ji and Ying Fan

Energy Economics, 2017, vol. 67, issue C, 98-110

Abstract: This study first decomposes the daily returns of regional gas and crude oil at different time scales, using the ensemble empirical mode decomposition (EEMD) method. It then investigates the causality relationship between each pair of components at the different time scales, by employing the linear and nonlinear Granger causality tests. For the original returns series, this study finds that unidirectional linear Granger causality exists from crude oil markets to North American and European gas markets. However, for nonlinear characteristics, the crude oil and regional gas markets exhibit bidirectional nonlinear Granger causality. On the medium-term time scale, a bidirectional nonlinear spillover effect is found between the markets. The long-term trends for the markets suggest a significant linear relationship; however, no nonlinear spillover effect is found between the crude oil and regional gas markets.

Keywords: Regional natural gas market; Crude oil market; Ensemble empirical mode decomposition; Nonlinear Granger causality test; Multi-scale analysis (search for similar items in EconPapers)
JEL-codes: C01 C32 C58 Q40 Q41 Q47 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:eneeco:v:67:y:2017:i:c:p:98-110