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Nonlinearities and the order of integration of oil prices

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Author Info
Juan Carlos Cuestas
Paulo Jose Regis

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Abstract

Unit root tests are the starting point of most empirical time series research. This paper analyses the order of integration of oil prices taking into account the possibilities of nonlinearities in the deterministic components. Using an aggregate index for the price of oil, and applying Bierens (1997) unit root tests, we find that the hypothesis of a unit root process is rejected in favour of nonlinear trend stationarity of the price of crude oil. On the contrary, preliminary analysis using Ng and Perron (2001) and Kapetanios, Shin and Snell's (2003) tests, fail to reject the hypothesis of a unit root.

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File URL: http://www.ntu.ac.uk/research/document_uploads/85425.pdf
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File Function: First version, 2008
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Publisher Info
Paper provided by Nottingham Trent University, Nottingham Business School, Economics Division in its series Working Papers with number 2008/15.

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Date of creation: Sep 2008
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Handle: RePEc:nbs:wpaper:2008/15

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Web page: http://www.ntu.ac.uk/nbs

For technical questions regarding this item, or to correct its listing, contact: (Juan Carlos Cuestas).

Related research
Keywords: Unit roots; Nonlinearities; Oil price;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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  1. Jan Bentzen, 2007. "Does OPEC influence crude oil prices? Testing for co-movements and causality between regional crude oil prices," Applied Economics, Taylor and Francis Journals, vol. 39(11), pages 1375-1385. [Downloadable!] (restricted)
  2. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February. [Downloadable!] (restricted)
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  3. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February. [Downloadable!] (restricted)
  4. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
  5. Michael LeBlanc & Menzie Chinn, 2004. "Do High Oil Prices Presage Inflation? The Evidence from G-5 Countries," Santa Cruz Center for International Economics, Working Paper Series 1021, Center for International Economics, UC Santa Cruz. [Downloadable!]
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  6. Vogelsang, T.I. & Perron, P., 1991. "Nonstationary and Level Shifts With An Application To Purchasing Power Parity," Papers 359, Princeton, Department of Economics - Econometric Research Program.
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  7. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
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  8. Lanza, Alessandro & Manera, Matteo & Giovannini, Massimo, 2005. "Modeling and forecasting cointegrated relationships among heavy oil and product prices," Energy Economics, Elsevier, vol. 27(6), pages 831-848, November. [Downloadable!] (restricted)
  9. Perron, Pierre & Vogelsang, Timothy J, 1992. "Testing for a Unit Root in a Time Series with a Changing Mean: Corrections and Extensions," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 467-70, October.
  10. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July. [Downloadable!] (restricted)
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