IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v32y2010i4p868-876.html
   My bibliography  Save this article

Global economic activity and crude oil prices: A cointegration analysis

Author

Listed:
  • He, Yanan
  • Wang, Shouyang
  • Lai, Kin Keung

Abstract

This paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity. The Kilian economic index is used as an indicator of global economic activity. Based on a supply-demand framework and the cointegration theory, we find that real futures prices of crude oil are cointegrated with the Kilian economic index and a trade weighted US dollar index, and crude oil prices are influenced significantly by fluctuations in the Kilian economic index through both long-run equilibrium conditions and short-run impacts. We also develop an empirically stable, data-coherent and single-equation error-correction model (ECM) which has sensible economic properties. Empirical results based on the ECM show that the adjustment implied by a permanent change in the Kilian economic index is a relatively drawn-out process.

Suggested Citation

  • He, Yanan & Wang, Shouyang & Lai, Kin Keung, 2010. "Global economic activity and crude oil prices: A cointegration analysis," Energy Economics, Elsevier, vol. 32(4), pages 868-876, July.
    • Handle: RePEc:eee:eneeco:v:32:y:2010:i:4:p:868-876
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140-9883(09)00245-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    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. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
    2. Mr. Noureddine Krichene, 2006. "World Crude Oil Markets: Monetary Policy and the Recent Oil Shock," IMF Working Papers 2006/062, International Monetary Fund.
    3. Scarpa, Elisa & Longo, Chiara & Manera, Matteo & Markandya, Anil, 2007. "Evaluating the Empirical Performance of Alternative Econometric Models for Oil Price Forecasting," International Energy Markets Working Papers 12118, Fondazione Eni Enrico Mattei (FEEM).
    4. Balabanoff, Stefan, 1995. "Oil futures prices and stock management A cointegration analysis," Energy Economics, Elsevier, vol. 17(3), pages 205-210, July.
    5. Robert K. Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 67-90.
    6. James M. Griffin & Craig T. Schulman, 2005. "Price Asymmetry in Energy Demand Models: A Proxy for Energy-Saving Technical Change?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-22.
    7. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    8. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-1189, December.
    9. Möbert, Jochen, 2007. "Crude Oil Price Determinants," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35713, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    10. Lutz Kilian & Bruce Hicks, 2013. "Did Unexpectedly Strong Economic Growth Cause the Oil Price Shock of 2003–2008?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 32(5), pages 385-394, August.
    11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    12. Wirl, Franz, 2008. "Why do oil prices jump (or fall)?," Energy Policy, Elsevier, vol. 36(3), pages 1029-1043, March.
    13. Dermot Gately & Hillard G. Huntington, 2002. "The Asymmetric Effects of Changes in Price and Income on Energy and Oil Demand," The Energy Journal, , vol. 23(1), pages 19-55, January.
    14. Lutz Kilian, 2008. "Exogenous Oil Supply Shocks: How Big Are They and How Much Do They Matter for the U.S. Economy?," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 216-240, May.
    15. Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
    16. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
    17. Michael Ye & John Zyren & Joanne Shore, 2002. "Forecasting crude oil spot price using OECD petroleum inventory levels," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 8(4), pages 324-333, November.
    18. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
    19. Ye, Michael & Zyren, John & Shore, Joanne, 2005. "A monthly crude oil spot price forecasting model using relative inventories," International Journal of Forecasting, Elsevier, vol. 21(3), pages 491-501.
    20. Andreas Beyer, 1998. "Modelling money demand in Germany," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 57-76.
    21. Antonio Merino & Álvaro Ortiz, 2005. "Explaining the so‐called “price premium” in oil markets," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 29(2), pages 133-152, June.
    22. Möbert, Jochen, 2007. "Crude oil price determinants," Darmstadt Discussion Papers in Economics 186, Darmstadt University of Technology, Department of Law and Economics.
    23. Möbert, Jochen, 2007. "Crude Oil Price Determinants," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77383, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    24. Sadorsky, Perry, 2000. "The empirical relationship between energy futures prices and exchange rates," Energy Economics, Elsevier, vol. 22(2), pages 253-266, April.
    25. Lynch, Michael C., 2002. "Forecasting oil supply: theory and practice," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 373-389.
    Full references (including those not matched with items on IDEAS)

    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. Claudio Dicembrino & Pasquale Lucio Scandizzo, 2012. "The Fundamental and Speculative Components of the Oil Spot Price: A Real Option Value Approach," CEIS Research Paper 229, Tor Vergata University, CEIS, revised 18 Apr 2012.
    2. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    3. Chevillon, Guillaume & Rifflart, Christine, 2009. "Physical market determinants of the price of crude oil and the market premium," Energy Economics, Elsevier, vol. 31(4), pages 537-549, July.
    4. Ai Han & Yanan He & Yongmiao Hong & Shouyang Wang, 2013. "Forecasting Interval-valued Crude Oil Prices via Autoregressive Conditional Interval Models," Working Papers 2013-10-14, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    5. Dong, Minyi & Chang, Chun-Ping & Gong, Qiang & Chu, Yin, 2019. "Revisiting global economic activity and crude oil prices: A wavelet analysis," Economic Modelling, Elsevier, vol. 78(C), pages 134-149.
    6. Clostermann, Jörg & Keis, Nikolaus & Seitz, Franz, 2010. "Short-term oil models before and during the financial market crisis," Arbeitsberichte – Working Papers 18, Technische Hochschule Ingolstadt (THI).
    7. repec:ipg:wpaper:2014-421 is not listed on IDEAS
    8. Wajdi Hamza Dawod Alredany, 2018. "A Regression Analysis of Determinants Affecting Crude Oil Price," International Journal of Energy Economics and Policy, Econjournals, vol. 8(4), pages 110-119.
    9. Reitz, Stefan & Rülke, Jan & Stadtmann, Georg, 2012. "Nonlinear Expectations in Speculative Markets," VfS Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62045, Verein für Socialpolitik / German Economic Association.
    10. Reitz, Stefan & Rülke, Jan-Christoph & Stadtmann, Georg, 2012. "Nonlinear expectations in speculative markets – Evidence from the ECB survey of professional forecasters," Journal of Economic Dynamics and Control, Elsevier, vol. 36(9), pages 1349-1363.
    11. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    12. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    13. Naser, Hanan, 2016. "Estimating and forecasting the real prices of crude oil: A data rich model using a dynamic model averaging (DMA) approach," Energy Economics, Elsevier, vol. 56(C), pages 75-87.
    14. Matteo Manera & Chiara Longo & Anil Markandya & Elisa Scarpa, 2007. "Evaluating the Empirical Performance of Alternative Econometric Models for Oil Price Forecasting," Working Papers 2007.4, Fondazione Eni Enrico Mattei.
    15. Natanelov, Valeri & Alam, Mohammad J. & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2011. "Is there co-movement of agricultural commodities futures prices and crude oil?," Energy Policy, Elsevier, vol. 39(9), pages 4971-4984, September.
    16. Frankel, Jeffrey A., 2014. "Effects of speculation and interest rates in a “carry trade” model of commodity prices," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 88-112.
    17. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    18. Degiannakis, Stavros & Filis, George & Floros, Christos, 2013. "Oil and stock returns: Evidence from European industrial sector indices in a time-varying environment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 175-191.
    19. Chul-Yong Lee & Sung-Yoon Huh, 2017. "Forecasting Long-Term Crude Oil Prices Using a Bayesian Model with Informative Priors," Sustainability, MDPI, vol. 9(2), pages 1-15, January.
    20. Ekins, Paul & Pollitt, Hector & Barton, Jennifer & Blobel, Daniel, 2011. "The implications for households of environmental tax reform (ETR) in Europe," Ecological Economics, Elsevier, vol. 70(12), pages 2472-2485.
    21. Angelidis, Timotheos & Degiannakis, Stavros & Filis, George, 2015. "US stock market regimes and oil price shocks," Global Finance Journal, Elsevier, vol. 28(C), pages 132-146.

    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:eneeco:v:32:y:2010:i:4:p:868-876. 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/eneco .

    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.