Do oil prices respond to real interest rates?
AbstractWe show that the robustness of an inverse relationship between the real interest rate and real oil price depends crucially on how the real interest rate is calculated, and the time-frame of the sample. Consistent with earlier studies, we find that the oil price falls with an unexpected rise in either U.S. or international ex-ante real interest rates. When the ex-post real interest rate is used, the oil price only falls with rises to short-term rates (3months or less). Additionally, the response of the oil price to long-term ex-ante real interest rates must include the period through the mid-2000s for the inverse relationship to appear. In contrast, the oil price consistently falls with unexpected rises in short-term real interest rates throughout the entire sample. We draw two conclusions from the results. The first is that the oil price is consistently responsive to short-term U.S. and international real interest rates, underlying the importance of storage. Second, oil prices have become more responsive to long-term real interest rates over time.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 36 (2013)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/eneco
Oil price; Real interest rate; VAR; Hotelling; Storage;
Other versions of this item:
- Arora, Vipin & Tanner, Matthew, 2011. "How important are real interest rates for oil prices?," MPRA Paper 35883, University Library of Munich, Germany.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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