A Note on the Oil Price Trend and GARCH Shocks
AbstractThis paper investigates the trend in the monthly real price of oil between 1990 and 2008 with a generalized autoregressive conditional heteroskedasticity (GARCH) model. Trend and volatility are estimated jointly with the maximum likelihood estimation. There is long persistence in the variance of oil price shocks, and a GARCH unit root (GUR) test can potentially yield a significant power gain relative to the augmented Dickey-Fuller (ADF) test. After allowing for nonlinearity, the evidence supports a deterministic trend in the price of oil. The deterministic trend implies that influence of a price shock is transitory and policy efforts to restore a predictable price after a shock would be unwarranted in the long run.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20654.
Date of creation: 2010
Date of revision:
Oil Price; Volatility; Trend; GARCH; Fourier Form;
Other versions of this item:
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
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