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Exploring the core factors and its dynamic effects on oil price: An application on path analysis and BVAR-TVP model

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  • Chai, Jian
  • Guo, Ju-E.
  • Meng, Lei
  • Wang, Shou-Yang
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    Abstract

    As the uncertainty of oil price increases, impacts of the influential factors on oil price vary over time. It is of great importance to explore the core factors and its time-varying influence on oil price. In view of this, based on the PATH-ANALYSIS model, this paper obtains the core factors, builds an oil price system VAR model, which uses demand, supply, price, and inventory as endogenous variables, and China's net imports as well as dollar index as exogenous variables. Then we set up a BVAR-TVP (Time varying parameter) model to analyze dynamic impacts of core factors on oil price. The results show that: (1) oil prices became more sensitive to oil supply changes, and the influence delays became shorter; (2) the impact of oil inventories on oil prices with a time lag of two quarters but has a downward trend; (3) the impact of oil consumption on oil prices with a time lag of two quarters, and this effect is increasingly greater; (4) the US dollar index is always the important factor of oil price and its control power increases gradually, and the financial crisis (occurred in 2008) further strengthens the influence of US dollar.

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    Bibliographic Info

    Article provided by Elsevier in its journal Energy Policy.

    Volume (Year): 39 (2011)
    Issue (Month): 12 ()
    Pages: 8022-8036

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    Handle: RePEc:eee:enepol:v:39:y:2011:i:12:p:8022-8036

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    Web page: http://www.elsevier.com/locate/enpol

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    Keywords: Oil price; China's net import; Dollar index;

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    Cited by:
    1. Lu, Feng-bin & Hong, Yong-miao & Wang, Shou-yang & Lai, Kin-keung & Liu, John, 2014. "Time-varying Granger causality tests for applications in global crude oil markets," Energy Economics, Elsevier, vol. 42(C), pages 289-298.
    2. He, Yongxiu & Wang, Bing & Wang, Jianhui & Xiong, Wei & Xia, Tian, 2013. "Correlation between Chinese and international energy prices based on a HP filter and time difference analysis," Energy Policy, Elsevier, vol. 62(C), pages 898-909.

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