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Non-Linear Unit Root Properties of Crude Oil Production

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  • Svetlana Maslyuk
  • Russell Smyth

Abstract

While there is good reason to expect crude oil production to be non-linear, previous studies that have examined the stochastic properties of crude oil production have assumed that crude oil production follows a linear process. If crude oil production is a non-linear process, conventional unit root tests, which assume linear and systematic adjustment, could interpret departure from linearity as permanent stochastic disturbances. The objective of this paper is to test for non-linearities and unit roots in crude oil production. To realize our objective, this study applies a threshold autoregressive model with an autoregressive unit root to monthly crude oil production levels for 16 OPEC and non-OPEC countries over the period January 1973 to December 2006. Specifically, first we test for the presence of non-linearities (threshold effects) in the production of crude oil in two regimes. Second, we test for a unit root against a non-linear stationary process in two regimes and a partial unit root process when the unit root is present in one regime only. We find that crude oil production is characterized by threshold effects. We find that for ten of the countries a unit root was present in both regimes, while for the others a partial unit root was found to be present in either the first regime or second regime.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 39-07.

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Length: 35 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mos:moswps:2007-39

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Keywords: Oil production; unit root; linearities.;

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Citations

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Cited by:
  1. Russell Smyth, 2012. "Are fluctuations in energy variables permanent or transitory? A survey of the literature on the integration properties of energy consumption and production," Development Research Unit Working Paper Series, Monash University, Department of Economics 04-12, Monash University, Department of Economics.
  2. Paresh Kumar Narayan & Ruipeng Liu, 2010. "Are Shocks to Commodity Prices Persistent?," Economics Series 2010_02, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Lee, Chien-Chiang & Zeng, Jhih-Hong, 2011. "Revisiting the relationship between spot and futures oil prices: Evidence from quantile cointegrating regression," Energy Economics, Elsevier, Elsevier, vol. 33(5), pages 924-935, September.
  4. Barros, Carlos Pestana & Gil-Alana, Luis A. & Payne, James E., 2013. "U.S. Disaggregated renewable energy consumption: Persistence and long memory behavior," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 425-432.
  5. Lean, Hooi Hooi & Smyth, Russell, 2014. "Are shocks to disaggregated energy consumption in Malaysia permanent or temporary? Evidence from LM unit root tests with structural breaks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 31(C), pages 319-328.
  6. Belbute, José, 2013. "Does final demand for energy in Portugal exhibit long memory?," MPRA Paper 45717, University Library of Munich, Germany.
  7. Lean, Hooi Hooi & Smyth, Russell, 2013. "Will policies to promote renewable electricity generation be effective? Evidence from panel stationarity and unit root tests for 115 countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 22(C), pages 371-379.
  8. Chen, Shyh-Wei & Lin, Shih-Mo, 2014. "Non-linear dynamics in international resource markets: Evidence from regime switching approach," Research in International Business and Finance, Elsevier, Elsevier, vol. 30(C), pages 233-247.
  9. Barros, Carlos Pestana & Gil-Alana, Luis A. & Payne, James E., 2011. "An analysis of oil production by OPEC countries: Persistence, breaks, and outliers," Energy Policy, Elsevier, vol. 39(1), pages 442-453, January.
  10. Mishra, Vinod & Sharma, Susan & Smyth, Russell, 2009. "Are fluctuations in energy consumption per capita transitory? Evidence from a panel of Pacific Island countries," Energy Policy, Elsevier, vol. 37(6), pages 2318-2326, June.
  11. Hasanov, Mübariz & Telatar, Erdinc, 2011. "A re-examination of stationarity of energy consumption: Evidence from new unit root tests," Energy Policy, Elsevier, vol. 39(12), pages 7726-7738.
  12. Paresh Narayan & Russell Smyth, 2014. "Applied Econometrics and a Decade of Energy Economics Research," Development Research Unit Working Paper Series, Monash University, Department of Economics 21-14, Monash University, Department of Economics.
  13. Douglas B. Reynolds & Marek Kolodziej, 2009. "North American Natural Gas Supply Forecast: The Hubbert Method Including the Effects of Institutions," Energies, MDPI, Open Access Journal, vol. 2(2), pages 269-306, May.
  14. Narayan, Paresh Kumar & Wong, Philip, 2009. "A panel data analysis of the determinants of oil consumption: The case of Australia," Applied Energy, Elsevier, vol. 86(12), pages 2771-2775, December.
  15. Thameur Necibi, 2014. "Prospective Modelling of Oil Supply in Tunisia," International Journal of Energy Economics and Policy, Econjournals, Econjournals, vol. 4(2), pages 220-228.
  16. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2011. "Energy consumption at business cycle horizons: The case of the United States," Energy Economics, Elsevier, Elsevier, vol. 33(2), pages 161-167, March.
  17. Hooi Hooi Lean & Russell Smyth, 2012. "Are fluctuations in production of renewable energy permanent or transitory?," Development Research Unit Working Paper Series, Monash University, Department of Economics 05-12, Monash University, Department of Economics.
  18. Kumar Narayan, Paresh & Narayan, Seema & Popp, Stephan, 2010. "Energy consumption at the state level: The unit root null hypothesis from Australia," Applied Energy, Elsevier, vol. 87(6), pages 1953-1962, June.
  19. Lean, Hooi Hooi & Smyth, Russell, 2009. "Long memory in US disaggregated petroleum consumption: Evidence from univariate and multivariate LM tests for fractional integration," Energy Policy, Elsevier, vol. 37(8), pages 3205-3211, August.

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