Non Linear Oil Price Dynamics - A Tale of Heterogeneous Speculators?
Deutsche Bundesbank Discussion Paper No. 10/2008
22 Pages Posted: 10 Jul 2008
Date Written: March 31, 2008
While some of the recent surge of oil prices can be attributed to robust global demand at a time of tight production capacities, commentators occasionally also blame the impact of speculators for part of the price pressure. We propose an empirical oil market model with heterogeneous speculators. Whereas trend-extrapolating chartists may tend to destabilize the market, fundamentalists exercise a stabilizing effect on the price dynamics. Using monthly data for WTI oil prices, our STR-GARCH estimates indicate that oil price cycles may indeed emerge due to the nonlinear interplay between different trader types.
Keywords: oil price dynamics, endogenous bubbles, STR GARCH model
JEL Classification: D84, Q33
Suggested Citation: Suggested Citation