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Crude Oil Prices

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  • Noureddine Krichene
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    Abstract

    Following record low interest rates and fast depreciating U.S. dollar, crude oil prices became under rising pressure and seemed boundless. Oil price process parameters changed drastically in 2003M5-2007M10 toward consistently rising prices. Short-term forecasting would imply persistence of observed trends, as market fundamentals and underlying monetary policies were supportive of these trends. Market expectations derived from option prices anticipated further surge in oil prices and allowed significant probability for right tail events. Given explosive trends in other commodities prices, depreciating currencies, and weakening financial conditions, recent trends in oil prices might not persist further without triggering world economic recession, regressive oil supply, as oil producers became wary about inflation. Restoring stable oil markets, through restraining monetary policy, is essential for durable growth and price stability.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/133.

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    Length: 23
    Date of creation: 01 May 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/133

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    Related research

    Keywords: Commodity prices; Exchange rate depreciation; oil prices; probability; skewness; kurtosis; crude oil; characteristic function; oil supply; probability density; crude oil prices; martingale; oil markets; oil demand; normal distribution; stochastic process; equation; minimization; statistics; gaussian process; oil shocks; computation; finite variance; diffusion model; logarithm; maximum likelihood method; random variables; poisson process; random variable; statistical distribution; equations; samples; oil producers; gaussian processes; descriptive statistics; crude oil markets; natural gas; stochastic processes; generating function; predictability; oil and gas; world oil demand; stochastic differential equation; simultaneous equations; gas markets; probability density function; mathematics; natural gas markets; statistical distributions; oil shock; average price for oil; stochastic models; gamma distribution; price for oil; statistical data; calibration; forecasting; random walks; oil demand growth; functional form; probability distribution; statistical estimation; economic stability; parameter estimation;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
    2. Noureddine Krichene, 2007. "An Oil and Gas Model," IMF Working Papers 07/135, International Monetary Fund.
    3. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
    4. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
    5. Noureddine Krichene, 2005. "A Simultaneous Equation Model for World Crude Oil and Natural Gas Markets," IMF Working Papers 05/32, International Monetary Fund.
    6. Krichene, Noureddine, 2002. "World crude oil and natural gas: a demand and supply model," Energy Economics, Elsevier, vol. 24(6), pages 557-576, November.
    7. Geman, Hélyette & Carr, Peter & Madan, Dilip B. & Yor, Marc, 2003. "Stochastic Volatility for Levy Processes," Economics Papers from University Paris Dauphine 123456789/1392, Paris Dauphine University.
    8. Benoit Mandelbrot, 1963. "New Methods in Statistical Economics," Journal of Political Economy, University of Chicago Press, vol. 71, pages 421.
    9. Noureddine Krichene, 2006. "World Crude Oil Markets," IMF Working Papers 06/62, International Monetary Fund.
    10. Eberlein, Ernst & Keller, Ulrich & Prause, Karsten, 1998. "New Insights into Smile, Mispricing, and Value at Risk: The Hyperbolic Model," The Journal of Business, University of Chicago Press, vol. 71(3), pages 371-405, July.
    11. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-55, January.
    12. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    13. Ole E. Barndorff-Nielsen, 1997. "Processes of normal inverse Gaussian type," Finance and Stochastics, Springer, vol. 2(1), pages 41-68.
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