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Crude oil price behaviour before and after military conflicts and geopolitical events

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  • Monge, Manuel
  • Gil-Alana, Luis A.
  • Pérez de Gracia, Fernando

Abstract

Crude oil price behaviour depends on all the events that have the potential to disrupt the flow of oil. We understand that these causes could be geopolitical issues and/or military conflicts in/with the producer countries and a problem relating to demand and supply. In the paper we first investigate the statistical properties of the real oil prices as well as its log-transformation, along with the absolute and squared returns values. Then, we also address the following issue: Does the crude oil price behave in the same way before and after a military conflict or geopolitical problem in the producer countries? To answer this question we analyse the real oil prices of West Texas Intermediate (WTI) before and after the different military conflicts and political events that occurred after World War II. For this purpose we use techniques based on unit roots and fractional integration. The empirical results provide evidence of persistence and breaks in the oil prices series and stationary long memory in the absolute returns. However, we do not observe significant differences before and after the conflict and geopolitical events.

Suggested Citation

  • Monge, Manuel & Gil-Alana, Luis A. & Pérez de Gracia, Fernando, 2017. "Crude oil price behaviour before and after military conflicts and geopolitical events," Energy, Elsevier, vol. 120(C), pages 79-91.
  • Handle: RePEc:eee:energy:v:120:y:2017:i:c:p:79-91
    DOI: 10.1016/j.energy.2016.12.102
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    1. repec:eee:energy:v:157:y:2018:i:c:p:526-538 is not listed on IDEAS
    2. repec:eee:enepol:v:125:y:2019:i:c:p:110-121 is not listed on IDEAS
    3. Rangan Gupta & Chi Keung Marco Lau & Seong-Min Yoon, 2017. "OPEC News Announcement Effect on Volatility in the Crude Oil Market: A Reconsideration," Working Papers 201754, University of Pretoria, Department of Economics.
    4. Guglielmo Maria Caporale & Luis A. Gil-Alana & Manuel Monge, 2019. "Energy Consumption in the GCC Countries: Evidence on Persistence," CESifo Working Paper Series 7470, CESifo Group Munich.

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    Keywords

    Real oil prices; Fractional integration; Unit roots; Military conflicts; Geopolitical events;

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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