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U.S. petroleum consumption behavior and oil price uncertainty: Tests of cointegration and parameter instability

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  • A. Arize

Abstract

This study utilizes cointegration theory to correctly characterize U.S. petroleum consumption behavior. Initial estimates show the absence of any long-run, unique relationship among petroleum consumption, real income, and relative prices. However, the introduction of oil price uncertainty into this relationship shows the presence of a cointegrating relationship. Oil price uncertainty was introduced in two ways, namely, as an exogenous I(1) variable and as a regressand. Estimates of the cointegrating relationship are obtained using a variety of techniques such as the Johansen system, the Phillips-Hansen, the Stock-Watson, the Park canonical cointegrating regression, the Phillips spectral, and the Engle-Granger test procedures. Parameter instability of the cointegrating relationship is tested using methods discussed in Hansen [1992] and Hansen and Johansen [1993]. While previous studies in this literature have yielded mixed results on the issue of cointegration and ignored tests for parameter instability of the cointegrated systems, this study has presented new evidence on an empirically stable petroleum oil demand function. Copyright International Atlantic Economic Society 2000

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  • A. Arize, 2000. "U.S. petroleum consumption behavior and oil price uncertainty: Tests of cointegration and parameter instability," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(4), pages 463-477, December.
    • Handle: RePEc:kap:atlecj:v:28:y:2000:i:4:p:463-477
    DOI: 10.1007/BF02298398
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    2. 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.
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    4. Yang, C. W. & Hwang, M. J. & Huang, B. N., 2002. "An analysis of factors affecting price volatility of the US oil market," Energy Economics, Elsevier, vol. 24(2), pages 107-119, March.
    5. Ye, Michael & Zyren, John & Shore, Joanne, 2006. "Forecasting short-run crude oil price using high- and low-inventory variables," Energy Policy, Elsevier, vol. 34(17), pages 2736-2743, November.

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