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How Persistent are Shocks to Energy Prices?

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  • Atanu Ghoshray

Abstract

Whether shocks to energy prices are permanent or transitory remains a contentious issue. This may result from mis-specification of the econometric tests, due for example to the uncertainty over the presence of a trend, or the possible presence of structural breaks and non-stationary volatility in the data. This paper makes a contribution by addressing the underlying characteristics of energy price data that influence such econometric tests. First, we detect whether the data are characterised by non-stationary volatility and possible trend breaks. The next step involves employing novel unit root tests that unify the underlying characteristics, such as trend break and/or nonstationary volatility, of the data. We conclude shocks to energy prices are not transitory. We further decompose a benchmark oil price and its demand and supply components into their permanent and transitory components and compute the cross correlations to find that they conform to standard theories of commodity storage models.

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  • Atanu Ghoshray, 2018. "How Persistent are Shocks to Energy Prices?," The Energy Journal, , vol. 39(1_suppl), pages 175-192, June.
    • Handle: RePEc:sae:enejou:v:39:y:2018:i:1_suppl:p:175-192
    DOI: 10.5547/01956574.39.SI1.agho
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    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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    Cited by:

    1. Wang, Yudong & Hao, Xianfeng, 2023. "Forecasting the real prices of crude oil: What is the role of parameter instability?," Energy Economics, Elsevier, vol. 117(C).
    2. Francesco Corsello & Marianna Riggi, 2023. "Inflation is not equal for all: the heterogenous effects of energy shocks," Temi di discussione (Economic working papers) 1429, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Energy prices; volatility; persistence; structural breaks;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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