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Oil And Gas Markets In The Uk: Evidence For From A Cointegrating Approach

Author

Listed:
  • Theodore Panagiotidis

    (Loughborough University)

  • Emilie Rutledge

    (Durham University)

Abstract

The paper examines the relationship between UK wholesale gas prices and the Brent oil price over the period 1996-2003. Tests for Unit Roots and Cointegration are carried out and it is discovered that a long run equilibrium relationship between UK gas and oil prices predates the opening of the UK-Mainland Europe Inter-connector. Following a recursive methodology (Hansen & Johansen 1999), it was found that the cointegrating relationship is present throughout the sample period. However, the long run solutions seem to be more volatile. Evidence is provided that the short run relationship is linear and impulse response functions are used to examine the effects that a shock in oil would have on gas.

Suggested Citation

  • Theodore Panagiotidis & Emilie Rutledge, 2005. "Oil And Gas Markets In The Uk: Evidence For From A Cointegrating Approach," Econometrics 0504004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:0504004
    Note: Type of Document - pdf; pages: 31
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/em/papers/0504/0504004.pdf
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    References listed on IDEAS

    as
    1. Henrik Hansen & Søren Johansen, 1999. "Some tests for parameter constancy in cointegrated VAR-models," Econometrics Journal, Royal Economic Society, vol. 2(2), pages 306-333.
    2. Brock, W.A. & Dechert, W.D. & LeBaron, B. & Scheinkman, J.A., 1995. "A Test for Independence Based on the Correlation Dimension," Working papers 9520, Wisconsin Madison - Social Systems.
    3. De Vany, Arthur S. & Walls, W. David, 1999. "Cointegration analysis of spot electricity prices: insights on transmission efficiency in the western US," Energy Economics, Elsevier, vol. 21(5), pages 435-448, October.
    4. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. Wang, Zuyi & Kim, Man-Keun, 2022. "Price bubbles in oil & gas markets and their transfer," Resources Policy, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    oil; gas; cointegration; nonparametric cointegration; recursive trace test; error correction; impulse response;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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