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Uncovering long term relationships between oil prices and the economy: A time-varying cointegration analysis

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  • Gogolin, Fabian
  • Kearney, Fearghal
  • Lucey, Brian M.
  • Peat, Maurice
  • Vigne, Samuel A.

Abstract

Establishing the relation between oil price movements and macroeconomic performance is of great importance for firms and policymakers, alike. Prior studies established this relation using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not hold in practice. To address this issue and go beyond the restrictive time-invariant environment, we employ the use of the time-varying cointegration framework of Bierens and Martins (2010). We present evidence of the long-run oil-economy relation evolving over the 1974–2015 period, with major events such as the Gulf War and the financialisation of commodity markets proving to be driving forces across the U.S., European and G7 economies considered.

Suggested Citation

  • Gogolin, Fabian & Kearney, Fearghal & Lucey, Brian M. & Peat, Maurice & Vigne, Samuel A., 2018. "Uncovering long term relationships between oil prices and the economy: A time-varying cointegration analysis," Energy Economics, Elsevier, vol. 76(C), pages 584-593.
  • Handle: RePEc:eee:eneeco:v:76:y:2018:i:c:p:584-593
    DOI: 10.1016/j.eneco.2018.10.002
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    Cited by:

    1. Rehman, Mobeen Ur & Bouri, Elie & Eraslan, Veysel & Kumar, Satish, 2019. "Energy and non-energy commodities: An asymmetric approach towards portfolio diversification in the commodity market," Resources Policy, Elsevier, vol. 63(C), pages 1-1.
    2. Xiao, Di & Wang, Jun, 2020. "Dynamic complexity and causality of crude oil and major stock markets," Energy, Elsevier, vol. 193(C).
    3. Li, Jinchao & Zhu, Shaowen & Wu, Qianqian, 2019. "Monthly crude oil spot price forecasting using variational mode decomposition," Energy Economics, Elsevier, vol. 83(C), pages 240-253.
    4. Liu, Tangyong & Gong, Xu, 2020. "Analyzing time-varying volatility spillovers between the crude oil markets using a new method," Energy Economics, Elsevier, vol. 87(C).

    More about this item

    Keywords

    Macroeconomy; Oil prices; WTI Oil; Brent Oil; Long-run;

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General

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