Small Trends and Big Cycles in Crude Oil Prices

Xiaoyi Mu and Haichun Ye

The Energy Journal, 2015, vol. 36, issue 1, 49-72

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.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:36:y:2015:i:1:p:49-72

DOI: 10.5547/01956574.36.1.3

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