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A unit root model for trending time-series energy variables

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  • Narayan, Paresh Kumar
  • Liu, Ruipeng

Abstract

In this paper, we propose a GARCH-based unit root test that is flexible enough to account for; (a) trending variables, (b) two endogenous structural breaks, and (c) heteroskedastic data series. Our proposed model is applied to a range of time-series, trending, and heteroskedastic energy variables. Our two main findings are: first, the proposed trend-based GARCH unit root model outperforms a GARCH model without trend; and, second, allowing for a time trend and two endogenous structural breaks are important in practice, for doing so allows us to reject the unit root null hypothesis.

Suggested Citation

  • Narayan, Paresh Kumar & Liu, Ruipeng, 2015. "A unit root model for trending time-series energy variables," Energy Economics, Elsevier, vol. 50(C), pages 391-402.
    • Handle: RePEc:eee:eneeco:v:50:y:2015:i:c:p:391-402
    DOI: 10.1016/j.eneco.2014.11.021
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    1. Kumar Narayan, Paresh & Smyth, Russell, 2007. "Are shocks to energy consumption permanent or temporary? Evidence from 182 countries," Energy Policy, Elsevier, vol. 35(1), pages 333-341, January.
    2. 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.
    3. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    4. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2008. "Are oil shocks permanent or temporary? Panel data evidence from crude oil and NGL production in 60 countries," Energy Economics, Elsevier, vol. 30(3), pages 919-936, May.
    5. Narayan, Paresh Kumar & Narayan, Seema & Sharma, Susan Sunila, 2013. "An analysis of commodity markets: What gain for investors?," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3878-3889.
    6. Smyth, Russell & Narayan, Paresh Kumar, 2015. "Applied econometrics and implications for energy economics research," Energy Economics, Elsevier, vol. 50(C), pages 351-358.
    7. Joakim Westerlund & Milda Norkute & Paresh Kumar Narayan, 2015. "A Factor Analytical Approach to the Efficient Futures Market Hypothesis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(4), pages 357-370, April.
    8. Joakim Westerlund & Paresh Narayan, 2013. "Testing the Efficient Market Hypothesis in Conditionally Heteroskedastic Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(11), pages 1024-1045, November.
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    14. Apergis, Nicholas & Payne, James E., 2010. "Structural breaks and petroleum consumption in US states: Are shocks transitory or permanent?," Energy Policy, Elsevier, vol. 38(10), pages 6375-6378, October.
    15. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2011. "Energy consumption at business cycle horizons: The case of the United States," Energy Economics, Elsevier, vol. 33(2), pages 161-167, March.
    16. Paresh Kumar Narayan & Stephan Popp, 2010. "A new unit root test with two structural breaks in level and slope at unknown time," Journal of Applied Statistics, Taylor & Francis Journals, vol. 37(9), pages 1425-1438.
    17. Mishra, Vinod & Smyth, Russell, 2014. "Is monthly US natural gas consumption stationary? New evidence from a GARCH unit root test with structural breaks," Energy Policy, Elsevier, vol. 69(C), pages 258-262.
    18. Paolo Agnolucci & Andrew Venn, 2011. "Industrial energy intensities in the UK: is there a deterministic or stochastic difference among sectors?," Applied Economics, Taylor & Francis Journals, vol. 43(12), pages 1447-1462.
    19. Salisu, Afees A. & Mobolaji, Hakeem, 2013. "Modeling returns and volatility transmission between oil price and US–Nigeria exchange rate," Energy Economics, Elsevier, vol. 39(C), pages 169-176.
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    More about this item

    Keywords

    Trend; Unit root; Structural break; GARCH; Energy price;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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