Abstract
Spectacular oil price increases occur on a regular basis; the most
recent one is dated July 2008. This paper puts forward the notion
that extreme oil price movements of this type can be described as
temporary explosive. The paper applies a forward recursive unit root
tests and finds evidence of explosive behavior in the following periods:
1990/1991, 2005/2006, and 2007/2008. Currently existing oil
price models are not capable of appropriately describing this type of
behavior. A thorough discussion of the underlying reasons of these
price hikes indicates these oil price episodes - even though extreme -
are mainly fundamentally explained. This finding is insufficiently acknowledged
in the literature on speculative oil price bubbles. Thus,
policy interventions as response to extreme movements of this kind
need to be very carefully thought through.
recent one is dated July 2008. This paper puts forward the notion
that extreme oil price movements of this type can be described as
temporary explosive. The paper applies a forward recursive unit root
tests and finds evidence of explosive behavior in the following periods:
1990/1991, 2005/2006, and 2007/2008. Currently existing oil
price models are not capable of appropriately describing this type of
behavior. A thorough discussion of the underlying reasons of these
price hikes indicates these oil price episodes - even though extreme -
are mainly fundamentally explained. This finding is insufficiently acknowledged
in the literature on speculative oil price bubbles. Thus,
policy interventions as response to extreme movements of this kind
need to be very carefully thought through.
Original language | English |
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Pages (from-to) | 1-5 |
Number of pages | 5 |
Journal | Energy Economics |
Volume | 60 |
Early online date | 16 Sept 2016 |
DOIs | |
Publication status | Published - Nov 2016 |
Bibliographical note
The author is grateful for the hospitality of the University of California, Berkeley as well as Resources for the Future, Washington, DC, while working on the paper. Financial support by the Fritz Thyssen Foundation for these research visits is gratefully acknowledged. An earlier version of this paper appeared as CESifo Working Paper No 4376.Keywords
- oil prices
- explosiveness
- fundamentals
- bubble
- speculation