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Small trends and big cycles in crude oil prices
We employ an unobserved components model to disentangle the long-term trend from cyclical movements in international benchmark crude oil prices using data from 1861 to 2010. The estimation of the model identifies a deterministic quadratic trend and two types of cycles, with the short cycle having a period of 6 years and the long cycle of around 29 years. Compared to the large amplitude of the cycles, the growth rate of the long-term trend is small. The out-of-sample forecasting performance of various competing models is compared to that of a “no change” random walk forecast. While the random walk forecast tends to be the most accurate at shorter horizons, it is outperformed by the trend-cycle models at horizons longer than one year. The results provide evidence of predictability in the price of crude oil at longer horizons.
- Speaker
- Dr Xiaoyi Mu, CEPMLP - University of Dundee
- Venue
- Room S86, Edward Wright Building
- Contact
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Dr. Andrea Patacconi