A Characterization of Oil Price Behavior - Evidence from Jump Models
AbstractThis paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3644.
Date of creation: 2011
Date of revision:
oil price; conditional jumps; GARCH; Hotelling; climate change; deterministic trend;
Other versions of this item:
- Gronwald, Marc, 2012. "A characterization of oil price behavior — Evidence from jump models," Energy Economics, Elsevier, vol. 34(5), pages 1310-1317.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
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