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Cyclical behavior of crude oil markets and economic recessions in the period 1986–2010

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  • Alvarez-Ramirez, Jose
  • Rodriguez, Eduardo
  • Martina, Esteban
  • Ibarra-Valdez, Carlos

Abstract

For at least one century, crude oil has been one of the most important commodities for the worldwide economic activity. Important technological innovations, including chemical transformation processes and transportation systems, have been based on the availability or not of crude oil. In this way, a close understanding of the crude oil market dynamics should provide insights in important aspects related to potential directions of technological change for both improving crude oil transformation efficiency and substitution by alternative energy sources. This paper studies the dynamics of the crude oil price for the period from 1986 to 2010. To this end, the entropy time-asymmetry is computed along the price trajectory. Empirical results indicated the presence of a non-regular cyclical behavior with a dominant period of about 4.5years. Some evidences pointing toward a comovement of entropy time-asymmetry peaks with major US economic recessions are found, suggesting a tight relationship between macroeconomy and crude oil prices. The results are discussed in terms of the major economic events that occurred in the upward and downward cycle periods and potential implications for the design of energy policies.

Suggested Citation

  • Alvarez-Ramirez, Jose & Rodriguez, Eduardo & Martina, Esteban & Ibarra-Valdez, Carlos, 2012. "Cyclical behavior of crude oil markets and economic recessions in the period 1986–2010," Technological Forecasting and Social Change, Elsevier, vol. 79(1), pages 47-58.
    • Handle: RePEc:eee:tefoso:v:79:y:2012:i:1:p:47-58
    DOI: 10.1016/j.techfore.2011.04.010
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    2. Joseph P Byrne & Ryuta Sakemoto & Bing Xu, 2020. "Commodity price co-movement: heterogeneity and the time-varying impact of fundamentals [Oil price shocks and the stock market: evidence from Japan]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(2), pages 499-528.
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    4. Antonio García-Amate & Alicia Ramírez-Orellana & Mª José Muñoz-Torrecillas, 2018. "Economic Consequences Of Peak Oil For The Major Multinational Oil And Gas Companies," Eurasian Journal of Business and Management, Eurasian Publications, vol. 6(1), pages 23-41.
    5. Fileccia, Gaetano & Sgarra, Carlo, 2018. "A particle filtering approach to oil futures price calibration and forecasting," Journal of Commodity Markets, Elsevier, vol. 9(C), pages 21-34.
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    7. Fan, Liwei & Pan, Sijia & Li, Zimin & Li, Huiping, 2016. "An ICA-based support vector regression scheme for forecasting crude oil prices," Technological Forecasting and Social Change, Elsevier, vol. 112(C), pages 245-253.

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    More about this item

    Keywords

    Crude oil; 4.5-year cycles; Recessions;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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