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Nonlinear oil price dynamics: a tale of heterogeneous speculators?

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  • Reitz, Stefan
  • Slopek, Ulf Dieter

Abstract

While some of the recent surge of oil prices can be attributed to robust global demand at a time of tight production capacities, commentators occasionally also blame the impact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend to destabilize the market, fundamentalists exercise a stabilizing effect on the price dynamics. Using monthly data for WTI oil prices, our STR-GARCH estimates indicate that oil price cycles may indeed emerge due to the nonlinear interplay between different trader types.

Suggested Citation

  • Reitz, Stefan & Slopek, Ulf Dieter, 2008. "Nonlinear oil price dynamics: a tale of heterogeneous speculators?," Discussion Paper Series 1: Economic Studies 2008,10, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:7552
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    More about this item

    Keywords

    oil price dynamics; endogenous bubbles; STR GARCH model;

    JEL classification:

    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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