A Markov regime-switching model of crude oil market integration
Konstantin Kuck () and
Journal of Commodity Markets, 2017, vol. 6, issue C, 16-31
This paper revisits the globalization-regionalization hypothesis for the world crude oil market. We examine long-run equilibrium relationships between major crude oil prices–WTI, Brent, Bonny Light, Dubai and Tapis–and focus on the adjustment behaviour following disequilibrium states. We account for a changing adjustment behaviour over time by using a Markov-switching vector error correction model. Our overall findings suggest that the crude oil market is globalized. Dubai turned out to be the only weakly exogenous price in all regimes, indicating its important role as a benchmark price. Furthermore, an interesting finding of our study is that the degree of market integration seems to be connected to global economic uncertainty.
Keywords: Crude oil; Market integration; Cointegration; Markov-switching vector error correction model (search for similar items in EconPapers)
JEL-codes: C32 Q41 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:6:y:2017:i:c:p:16-31
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