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Nonlinear oil price dynamics: a tale of heterogeneous speculators?

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  • Reitz, Stefan
  • Slopek, Ulf Dieter

Abstract

While some of the recent surge of oil prices can be attributed to robust global demand at a time of tight production capacities, commentators occasionally also blame the impact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend to destabilize the market, fundamentalists exercise a stabilizing effect on the price dynamics. Using monthly data for WTI oil prices, our STR-GARCH estimates indicate that oil price cycles may indeed emerge due to the nonlinear interplay between different trader types. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,10.

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Date of creation: 2008
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Handle: RePEc:zbw:bubdp1:7552

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Keywords: oil price dynamics; endogenous bubbles; STR GARCH model;

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