Uncovering long term relationships between oil prices and the economy: A time-varying cointegration analysis

Abstract

Establishing the relation between oil price movements and macroeconomic performance is of great importance for firms and policymakers, alike. Prior studies established this relation using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not hold in practice. To address this issue and go beyond the restrictive time-invariant environment, we employ the use of the time-varying cointegration framework of Bierens and Martins (2010). We present evidence of the long-run oil-economy relation evolving over the 1974-2015 period, with major events such as the Gulf War and the financialisation of commodity markets proving to be driving forces across the U.S., European and G7 economies considered.

COVID−19 and oil price risk exposure

“… 4 Changes in crude oil prices have had a significant effect on the economic and financial activities (e.g., Cologni & Manera, 2008 ; Gisser & Goodwin, 1986 ; Gogolin et al, 2018 ; Hamilton, 1983 ; Jones & Kaul, 1996 ; Lau et al, 2018) and on stock returns through several channels including higher production cost ( Jones, Leiby, & Paik, 2004 ), decrease in the discretionary income ( Gogineni, 2010 ), higher equity risk premium ( Hamilton & Herrera, 2004 ; Demirer, Jategaonkar, & Khalifa, 2015 ), higher inflation rates and uncertainties leading to lower economic growth ( Friedman, 1977 ). …”

Machine learning and oil price point and density forecasting

“…The literature on oil price forecasting is also vast. Just to mention a few papers, see Cologni and Manera (2008), Miller and Ni (2011), Ravazzolo and Rothman (2012), Hong and Yogo (2012), Gargano and Timmermann (2014), Baumeister and Kilian (2015), Mohaddes and Pesaran (2016), Gogolin et al (2018) and Yu et al (2019).…”

Do crude oil futures still fuel portfolio performance?

“…Because crude oil is an important raw material in modern industries, the dynamics of oil prices and their impact on economies and security markets worldwide have been analyzed in impressive depth (see Alquist et al, 2013;Aromi & Clements, 2019;Baumeister & Kilian, 2016;Gogolin et al, 2018;Kilian, 2009;Liu & Gong, 2020). However, with the financialization of oil futures markets (i.e., the increased activity of market participants that are not oil companies), some of the previously identified features of crude oil have changed.…”