Journal
INTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume 76, Issue -, Pages 336-356Publisher
ELSEVIER
DOI: 10.1016/j.iref.2021.05.012
Keywords
Crude oil; Natural gas; Economic policy uncertainty; Volatility; Markov-switching; Likelihood
Categories
Funding
- West Virginia Agricultural Experiment Station
- U.S. Department of Agriculture National Institute of Food and Agriculture, Hatch project [WVA00683]
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This study reveals different volatility patterns for oil and natural gas prices. Through quantile regression analysis, it is found that economic policy uncertainty increases the probability of turbulent market conditions for both commodities, although this effect has weakened in the post-shale period.
This paper analyzes the volatility patterns of oil and natural gas prices in the United States and how they have changed due to economic policy uncertainty in the pre-and post-shale era. Using Markov-Switching GARCH models, we find evidence of heterogeneous volatility regimes for both commodities (i.e., high vs. low volatility). While the volatility persistence for oil is similar during the two sub-periods, significant changes have occurred to the natural gas market. Using quantile regressions, we find that economic policy uncertainty increases the probability of agitated market conditions of both markets, although this effect has weakened during the post-shale period.
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