Template-Type: ReDIF-Article 1.0
Author-Name:  Xiaoyi Mu and Haichun Ye
Title:  Small Trends and Big Cycles in Crude Oil Prices
Classification-JEL: F0
Volume:  Volume 36
Issue:  Number 1
Year:  2015
Abstract:  We employ an unobserved components model to disentangle the long-term trend from cyclical movements in the price of internationally traded crude oil using data from 1861 to 2010. The in-sample 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 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 long horizons. 
Handle: RePEc:aen:journl:ej36-1-03
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=2599
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