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Long-run co-movements between oil prices and rig count in the presence of structural breaks

Author

Listed:
  • Nicoleta Iliescu

    (Iona College)

Abstract

In this article, we investigate the existence of long-run common trends (co-movements) shared by the WTI oil prices and the rig count variable in the US. To test for cointegration, we employ the Engle-Granger two-step procedure, the Johansen cointegration test, and the Gregory-Hansen procedure (which takes into account the possibility of structural breaks in the data). Both the Engle-Granger procedure and Johansen tests cannot find cointegration. However, the Gregory-Hansen procedure rejects the hypothesis of no cointegration at 1% in the specification which allows for structural breaks in the constant term, slope coefficients, and the trend term. In addition to cointegration, we examine the existence of any type of Granger-causality running between the two variables of interest. The Granger test identifies a bidirectional causality running between the two variables.

Suggested Citation

  • Nicoleta Iliescu, 2018. "Long-run co-movements between oil prices and rig count in the presence of structural breaks," Economics Bulletin, AccessEcon, vol. 38(2), pages 1171-1179.
    • Handle: RePEc:ebl:ecbull:eb-18-00297
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    References listed on IDEAS

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    7. Alexander Naumov, 2015. "The Relationship Between Oil Price and Costs," OxCarre Working Papers 152, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
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    Cited by:

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    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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