Template-Type: ReDIF-Article 1.0
Author-Name:  Atanu Ghoshray
Title:  How Persistent are Shocks to Energy Prices?
Classification-JEL: F0
Volume:  Volume 39
Issue:  Special Issue 1
Year:  2018
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.
Handle: RePEc:aen:journl:ej39-si1-Ghoshray
File-URL: http://www.iaee.org/en/publications/ejarticle.aspx?id=3209
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