Small trends and big cycles in crude oil prices

Xiaoyi (Shawn) Mu, Haichun Ye

    Research output: Working paperDiscussion paper

    1440 Downloads (Pure)

    Abstract

    In this paper, 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 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 in shorter horizons, it is outperformed by the trend-cycle models in longer horizons. The results provide evidence of predictability in the price of crude oil in longer horizons.
    Original languageEnglish
    Place of PublicationCleveland, OH
    PublisherUnited States Association for Energy Economics
    Pages1-40
    Number of pages40
    DOIs
    Publication statusPublished - 27 Nov 2012

    Publication series

    NameUSAEE Working Paper 12-147
    PublisherSSRN
    No.12-147

    Fingerprint

    Crude oil price
    Random walk
    Crude oil
    Forecasting performance
    Benchmark
    Unobserved components model
    Out-of-sample forecasting
    Predictability

    Keywords

    • oil price
    • cycle
    • trend
    • forecast
    • unoberserved components model

    Cite this

    Mu, X. S., & Ye, H. (2012). Small trends and big cycles in crude oil prices. (pp. 1-40). (USAEE Working Paper 12-147; No. 12-147). Cleveland, OH: United States Association for Energy Economics. https://doi.org/10.2139/ssrn.2181713
    Mu, Xiaoyi (Shawn) ; Ye, Haichun. / Small trends and big cycles in crude oil prices. Cleveland, OH : United States Association for Energy Economics, 2012. pp. 1-40 (USAEE Working Paper 12-147; 12-147).
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    Mu, XS & Ye, H 2012 'Small trends and big cycles in crude oil prices' USAEE Working Paper 12-147, no. 12-147, United States Association for Energy Economics, Cleveland, OH, pp. 1-40. https://doi.org/10.2139/ssrn.2181713

    Small trends and big cycles in crude oil prices. / Mu, Xiaoyi (Shawn); Ye, Haichun.

    Cleveland, OH : United States Association for Energy Economics, 2012. p. 1-40 (USAEE Working Paper 12-147; No. 12-147).

    Research output: Working paperDiscussion paper

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    Mu XS, Ye H. Small trends and big cycles in crude oil prices. Cleveland, OH: United States Association for Energy Economics. 2012 Nov 27, p. 1-40. (USAEE Working Paper 12-147; 12-147). https://doi.org/10.2139/ssrn.2181713