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The stable relationship between crude oil price and petrol price: Evidence from multivariate GARCH model

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  • Tuan Van Nguyen

    (The University of Dalat, Lamdong, Vietnam)

Abstract

This study investigates the relationship between crude oil price and petrol price as well as their behaviour using daily U.S. price series in the period from January 11th 1988 to May 20th 2011. We find that univariate GARCH(1,1) is likely the most suitable model to measure the volatility of relative changes in the crude oil price and the petrol price. Whereas, a multivariate GARCH(1,1) model of the diagonal BEKK type is employed to analyse the conditional correlation of the two series. Although the view of asymmetrical responses in the crude oil price and the petrol price is unsupported by this study, it is evident that there is a strongly positive correlation between them in the long-run.

Suggested Citation

  • Tuan Van Nguyen, 2013. "The stable relationship between crude oil price and petrol price: Evidence from multivariate GARCH model," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 2(2), pages 27-40., June.
    • Handle: RePEc:chi:journl:v:2:y:2013:i:2:p:27-40
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    ARCH effect; GARCH; BEKK; Oil price; Petrol price;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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