Journal
ENERGY ECONOMICS
Volume 32, Issue 4, Pages 868-876Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.eneco.2009.12.005
Keywords
Global economic activity; Crude oil prices; Kilian economic index; Cointegration; ECM
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This paper empirically investigates the cointegrating relationship between crude oil prices and global economic activity. The Kilian economic index is used as an indicator of global economic activity. Based on a supply-demand framework and the cointegration theory, we find that real futures prices of crude oil are cointegrated with the Kilian economic index and a trade weighted US dollar index, and crude oil prices are influenced significantly by fluctuations in the Kilian economic index through both long-run equilibrium conditions and short-run impacts. We also develop an empirically stable, data-coherent and single-equation error-correction model (ECM) which has sensible economic properties. Empirical results based on the ECM show that the adjustment implied by a permanent change in the Kilian economic index is a relatively drawn-out process. (C) 2009 Elsevier B.V. All rights reserved.
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