Modeling Energy Prices with a Markov-Switching dynamic regression model: 2005-2015
Evagelos Drimbetas and
Bulletin of Applied Economics, 2016, vol. 3, issue 1, 11-28
In this paper we employ a Markov-switching dynamic regression (MS-DR) model for a period before and after the financial crisis of 2008. Using data from 2005 to 2015, we examine the behavior of five energy prices series (Crude oil WTI, Heating oil, Unleaded gasoline, Diesel and Jet kerosine). The results reveal and confirm the existence of 2 distinct regimes. The first corresponds to a tranquil (calm) regime and the other to a crisis (turbulence) regime. Furthermore, we find robust evidence for the existence of several "recessions" in energy market prices. Given the relevance of the energy prices for the real economy, but also for monetary policy and stock markets, our findings are helpful to financial managers and energy analysts. We prove the undeniable need for more energy policy and regulation in order to help investors and market participants.
Keywords: Energy Market; Crude Oil; Petroleum products; Markov-Switching Dynamic Regression; Regimes (search for similar items in EconPapers)
JEL-codes: G1 C1 Q4 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:rmk:rmkbae:v:3:y:2016:i:1:p:11-28
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