IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v78y2022ics0301420722003555.html
   My bibliography  Save this article

Speed of adjustment in energy and metal prices: Evidence from India

Author

Listed:
  • Kumar, Satish

Abstract

In this paper, we empirically estimate the time-varying speed of adjustment (SOA) in commodity (crude oil, natural gas, aluminium, copper and zinc) prices in the Indian context. Using a price adjustment model based upon the theory of storage, we also investigate the factors affecting the speed of adjustment in commodity pricing. We further argue that the commodity prices exhibit bubbles similar to asset price bubbles. Our results indicate that the SOA for energy prices is around 41.8% while it is around 31.6% for metals’ prices. Our results further indicate that on an average, during bubbles the SOA is lower than days with no bubbles. Finally, we show that bubbles help explain 4.2%, 6.1%, and 3.8%, and of the SOA for aluminium, oil, and gas prices, respectively. As a measure of robustness, we conduct the same analysis on the global data and show that our results in the global context are qualitatively similar to those reported for the Indian context. Further, our results are also robust to a range of additional tests.

Suggested Citation

  • Kumar, Satish, 2022. "Speed of adjustment in energy and metal prices: Evidence from India," Resources Policy, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:jrpoli:v:78:y:2022:i:c:s0301420722003555
    DOI: 10.1016/j.resourpol.2022.102911
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420722003555
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2022.102911?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mohammadi, Hassan & Ram, Rati, 2017. "Convergence in energy consumption per capita across the US states, 1970–2013: An exploration through selected parametric and non-parametric methods," Energy Economics, Elsevier, vol. 62(C), pages 404-410.
    2. Chang, Chun-Ping & Lee, Chien-Chiang, 2015. "Do oil spot and futures prices move together?," Energy Economics, Elsevier, vol. 50(C), pages 379-390.
    3. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, February.
    4. Renou-Maissant, Patricia, 2012. "Toward the integration of European natural gas markets:A time-varying approach," Energy Policy, Elsevier, vol. 51(C), pages 779-790.
    5. Mishra, Vinod & Smyth, Russell, 2017. "Conditional convergence in Australia's energy consumption at the sector level," Energy Economics, Elsevier, vol. 62(C), pages 396-403.
    6. Akdoğan, Kurmaş, 2020. "Fundamentals versus speculation in oil market: The role of asymmetries in price adjustment?," Resources Policy, Elsevier, vol. 67(C).
    7. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-787, October.
    8. Ikeno, Hidehiro, 2014. "Long-run analysis on convergence of Japanese local price levels: A pairwise approach," Economic Modelling, Elsevier, vol. 42(C), pages 390-397.
    9. Mishra, Vinod & Smyth, Russell, 2014. "Convergence in energy consumption per capita among ASEAN countries," Energy Policy, Elsevier, vol. 73(C), pages 180-185.
    10. Wesley Burnett, J. & Madariaga, Jessica, 2017. "The convergence of U.S. state-level energy intensity," Energy Economics, Elsevier, vol. 62(C), pages 357-370.
    11. Patricia Renou-Maissant, 2012. "Toward the Integration of European Natural Gas Markets: A Time-Varying Approach," Post-Print hal-02562543, HAL.
    12. Bastianin, Andrea & Galeotti, Marzio & Polo, Michele, 2019. "Convergence of European natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 793-811.
    13. Ikeno, Hidehiro, 2014. "Pairwise tests of convergence of Japanese local price levels," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 232-248.
    14. Zavaleta, Armando & Walls, W.D. & Rusco, Frank W., 2015. "Refining for export and the convergence of petroleum product prices," Energy Economics, Elsevier, vol. 47(C), pages 206-214.
    15. Bai, Caiquan & Du, Kerui & Yu, Ying & Feng, Chen, 2019. "Understanding the trend of total factor carbon productivity in the world: Insights from convergence analysis," Energy Economics, Elsevier, vol. 81(C), pages 698-708.
    16. David Bosch & Elina Pradkhan, 2017. "Trading Activity and Rate of Convergence in Commodity Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(9), pages 930-938, September.
    17. Jens-Peter Loy & Carsten Steinhagen & Christoph Weiss & Birgit Koch, 2018. "Price transmission and local market power: empirical evidence from the Austrian gasoline market," Applied Economics, Taylor & Francis Journals, vol. 50(53), pages 5728-5746, November.
    18. Hegwood, Natalie D. & Nath, Hiranya K., 2013. "Structural breaks and relative price convergence among US cities," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 150-160.
    19. Holmes, Mark J. & Otero, Jesús, 2019. "Re-examining the movements of crude oil spot and futures prices over time," Energy Economics, Elsevier, vol. 82(C), pages 224-236.
    20. Cárdenas, Jeisson & Gutiérrez, Luis H. & Otero, Jesús, 2017. "Investigating diesel market integration in France: Evidence from micro data," Energy Economics, Elsevier, vol. 63(C), pages 314-321.
    21. Holmes, Mark J. & Otero, Jesús & Panagiotidis, Theodore, 2013. "On the dynamics of gasoline market integration in the United States: Evidence from a pair-wise approach," Energy Economics, Elsevier, vol. 36(C), pages 503-510.
    22. Nicholas Kaldor, 1939. "Speculation and Economic Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 7(1), pages 1-27.
    23. Ma, Hengyun & Oxley, Les & Gibson, John, 2009. "Gradual reforms and the emergence of energy market in China: Evidence from tests for convergence of energy prices," Energy Policy, Elsevier, vol. 37(11), pages 4834-4850, November.
    24. Caporin, Massimiliano & Fontini, Fulvio & Talebbeydokhti, Elham, 2019. "Testing persistence of WTI and Brent long-run relationship after the shale oil supply shock," Energy Economics, Elsevier, vol. 79(C), pages 21-31.
    25. Galay, Gregory, 2019. "Are crude oil markets cointegrated? Testing the co-movement of weekly crude oil spot prices," Journal of Commodity Markets, Elsevier, vol. 16(C).
    26. Luciano Gutierrez, 2013. "Speculative bubbles in agricultural commodity markets-super- †," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 40(2), pages 217-238, March.
    27. Herrerias, M.J. & Aller, Carlos & Ordóñez, Javier, 2017. "Residential energy consumption: A convergence analysis across Chinese regions," Energy Economics, Elsevier, vol. 62(C), pages 371-381.
    28. Kitenge, Erick M. & Morshed, A.K.M. Mahbub, 2019. "Price convergence among Indian cities: The role of linguistic differences, topography, and aggregation," Journal of Asian Economics, Elsevier, vol. 61(C), pages 34-50.
    29. Suvankulov, Farrukh & Lau, Marco Chi Keung & Ogucu, Fatma, 2012. "Price regulation and relative price convergence: Evidence from the retail gasoline market in Canada," Energy Policy, Elsevier, vol. 40(C), pages 325-334.
    30. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
    31. Cox, Charles C, 1976. "Futures Trading and Market Information," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1215-1237, December.
    32. Arfaoui, Mongi, 2018. "On the spot-futures relationship in crude-refined petroleum prices: New evidence from an ARDL bounds testing approach," Journal of Commodity Markets, Elsevier, vol. 11(C), pages 48-58.
    33. Narayan, Seema & Narayan, Paresh Kumar, 2017. "Estimating the speed of adjustment to target levels: The case of energy prices," Energy Economics, Elsevier, vol. 62(C), pages 419-427.
    34. Meng, Ming & Payne, James E. & Lee, Junsoo, 2013. "Convergence in per capita energy use among OECD countries," Energy Economics, Elsevier, vol. 36(C), pages 536-545.
    35. Zachmann, Georg, 2008. "Electricity wholesale market prices in Europe: Convergence?," Energy Economics, Elsevier, vol. 30(4), pages 1659-1671, July.
    36. Etienne, Xiaoli L. & Irwin, Scott H. & Garcia, Philip, 2014. "Bubbles in food commodity markets: Four decades of evidence," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 129-155.
    37. Awaworyi Churchill, Sefa & Inekwe, John & Ivanovski, Kris & Smyth, Russell, 2019. "Dynamics of oil price, precious metal prices and the exchange rate in the long-run," Energy Economics, Elsevier, vol. 84(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zolfaghari, Mehdi, 2023. "How does US tariff policy affect the relationship among crude oil, the US dollar and metal markets?," Resources Policy, Elsevier, vol. 85(PB).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Narayan, Seema & Narayan, Paresh Kumar, 2017. "Estimating the speed of adjustment to target levels: The case of energy prices," Energy Economics, Elsevier, vol. 62(C), pages 419-427.
    2. Ivanovski, Kris & Awaworyi Churchill, Sefa & Smyth, Russell, 2018. "A club convergence analysis of per capita energy consumption across Australian regions and sectors," Energy Economics, Elsevier, vol. 76(C), pages 519-531.
    3. Fallahi, Firouz, 2017. "Stochastic convergence in per capita energy use in world," Energy Economics, Elsevier, vol. 65(C), pages 228-239.
    4. Bello, Mufutau Opeyemi & Ch'ng, Kean Siang, 2022. "Convergence in energy intensity of GDP: Evidence from West African countries," Energy, Elsevier, vol. 254(PA).
    5. Lei Pan & Svetlana Maslyuk-Escobedo, 2017. "Stochastic convergence in per capita energy consumption and its catch-up rate: Evidence from 26 African countries," Monash Economics Working Papers 16-17, Monash University, Department of Economics.
    6. Cassetta, Ernesto & Nava, Consuelo R. & Zoia, Maria Grazia, 2022. "EU electricity market integration and cross-country convergence in residential and industrial end-user prices," Energy Policy, Elsevier, vol. 165(C).
    7. Oladosu, Gbadebo, 2022. "Bubbles in US gasoline prices: Assessing the role of hurricanes and anti–price gouging laws," Journal of Commodity Markets, Elsevier, vol. 27(C).
    8. Kassouri, Yacouba, 2022. "Boom-bust cycles in oil consumption: The role of explosive bubbles and asymmetric adjustments," Energy Economics, Elsevier, vol. 111(C).
    9. Apergis, Nicholas & Ewing, Bradley T. & Payne, James E., 2017. "Introduction: Symposium on Energy Sector Convergence," Energy Economics, Elsevier, vol. 62(C), pages 335-337.
    10. Mohamad Husam Helmi & Abdurrahman Nazif Catik & Nuran Coskun & Esra Balli & Ciler Sigeze, 2023. "Renewable Energy Consumption Convergence in G-7 Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 203-210, November.
    11. Ren, Xiaohang & Lu, Zudi & Cheng, Cheng & Shi, Yukun & Shen, Jian, 2019. "On dynamic linkages of the state natural gas markets in the USA: Evidence from an empirical spatio-temporal network quantile analysis," Energy Economics, Elsevier, vol. 80(C), pages 234-252.
    12. Cheong, Tsun Se & Li, Victor Jing & Shi, Xunpeng, 2019. "Regional disparity and convergence of electricity consumption in China: A distribution dynamics approach," China Economic Review, Elsevier, vol. 58(C).
    13. Shi, Xunpeng & Yu, Jian & Cheong, Tsun Se, 2020. "Convergence and distribution dynamics of energy consumption among China's households," Energy Policy, Elsevier, vol. 142(C).
    14. Wang, Na & Fu, Xiaodong & Wang, Shaobin & Yang, Hao & Li, Zhen, 2022. "Convergence characteristics and distribution patterns of residential electricity consumption in China: An urban-rural gap perspective," Energy, Elsevier, vol. 254(PB).
    15. Cassetta, Ernesto & Nava, Consuelo R. & Zoia, Maria Grazia, 2022. "A three-step procedure to investigate the convergence of electricity and natural gas prices in the European Union," Energy Economics, Elsevier, vol. 105(C).
    16. Simionescu, Mihaela, 2022. "Stochastic convergence in per capita energy use in the EU-15 countries. The role of economic growth," Applied Energy, Elsevier, vol. 322(C).
    17. Ahmed Qahtan, Anwar Saeed & Xu, Helian & Abdo, AL-Barakani, 2021. "Stochastic convergence of disaggregated energy consumption per capita and its catch-up rate: An independent analysis of MENA net oil-exporting and importing countries," Energy Policy, Elsevier, vol. 150(C).
    18. Vo, Duc Hong & Vo, Long Hai & Ho, Chi Minh, 2022. "Regional convergence of nonrenewable energy consumption in Vietnam," Energy Policy, Elsevier, vol. 169(C).
    19. Chao Bao & Hongjie Wang, 2019. "Trans-Provincial Convergence of per Capita Energy Consumption in Urban China, 1990–2015," Sustainability, MDPI, vol. 11(5), pages 1-15, March.
    20. Francisco Blasques & Siem Jan Koopman & Gabriele Mingoli, 2023. "Observation-Driven filters for Time-Series with Stochastic Trends and Mixed Causal Non-Causal Dynamics," Tinbergen Institute Discussion Papers 23-065/III, Tinbergen Institute.

    More about this item

    Keywords

    India; Speed of adjustment; Theory of storage; Bubbles; Energy prices; Metal prices;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:78:y:2022:i:c:s0301420722003555. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.