Oil and gas market in the UK: evidence from a cointegration approach

Theodore Panagiotidis and Emilie Rutledge

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: The paper examines the relationship between UK wholesale gas prices and the Brent oil price over the period 1996-2003. Tests for Unit Roots and Cointegration are carried out and it is discovered that a long run equilibrium relationship between UK gas and oil prices predates the opening of the UK-Mainland Europe Inter-connector. Following a recursive methodology (Hansen & Johansen 1999), it was found that the cointegrating relationship is present throughout the sample period. However, the long run solutions seem to be more volatile. Evidence is provided that the short run relationship is linear and impulse response functions are used to examine the effects that a shock in oil would have on gas.

Keywords: oil; gas; cointegration; nonparametric cointegration; recursive trace test; error correction; impulse response (search for similar items in EconPapers)
JEL-codes: C22 C52 O13 Q43 (search for similar items in EconPapers)
Date: 2004-11, Revised 2004-11
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