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Stochastic level shifts and outliers and the dynamics of oil price movements

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Listed author(s):
  • Trimbur, Thomas M.

Abstract

Oil prices clearly play an important role in the macroeconomy. The dynamics of oil prices have, however, been difficult to pin down because of the frequent occurrence of large shocks. In this paper, we propose a time series model with heavy-tailed disturbances to analyze the dynamics of the oil price. The model has the form of a generalized local linear trend, and we show that it successfully captures outliers and level shifts as empirical regularities in the oil price, including known historical price shocks. Further, the results of a forecast exercise are given, and we study extensions that examine the effect of the GDP cycle on the oil price.

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File URL: http://www.sciencedirect.com/science/article/pii/S0169-2070(09)00040-5
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 26 (2010)
Issue (Month): 1 (January)
Pages: 162-179

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Handle: RePEc:eee:intfor:v:26:y::i:1:p:162-179
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

Keywords: Band-pass filter Cycle Non-Gaussian Robust signal extraction Trend estimation Unobserved components;

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  1. Harvey, Andrew C. & Trimbur, Thomas M. & Van Dijk, Herman K., 2007. "Trends and cycles in economic time series: A Bayesian approach," Journal of Econometrics, Elsevier, vol. 140(2), pages 618-649, October.
  2. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
  3. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
  4. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
  5. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
  6. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
  7. Durbin, James & Koopman, Siem Jan, 2012. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, edition 2, number 9780199641178.
  8. Andrew C. Harvey & Thomas M. Trimbur, 2003. "General Model-Based Filters for Extracting Cycles and Trends in Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 244-255, May.
  9. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  10. Thomas M. Trimbur, 2006. "Properties of higher order stochastic cycles," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(1), pages 1-17, 01.
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Cited by:

  1. Cosentino, Valentina & Favuzza, Salvatore & Graditi, Giorgio & Ippolito, Mariano Giuseppe & Massaro, Fabio & Riva Sanseverino, Eleonora & Zizzo, Gaetano, 2012. "Smart renewable generation for an islanded system. Technical and economic issues of future scenarios," Energy, Elsevier, vol. 39(1), pages 196-204.
  2. Tucker S. McElroy & Thomas M. Trimbur, 2012. "Signal extraction for nonstationary multivariate time series with illustrations for trend inflation," Finance and Economics Discussion Series 2012-45, Board of Governors of the Federal Reserve System (U.S.).

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