Non Linear Oil Price Dynamics - A Tale of Heterogeneous Speculators?

Deutsche Bundesbank Discussion Paper No. 10/2008

22 Pages Posted: 10 Jul 2008

See all articles by Ulf D. Slopek

Ulf D. Slopek

Deutsche Bundesbank

Stefan Reitz

Deutsche Bundesbank; University of Giessen

Date Written: March 31, 2008

Abstract

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

Slopek, Ulf D. and Reitz, Stefan and Reitz, Stefan, Non Linear Oil Price Dynamics - A Tale of Heterogeneous Speculators? (March 31, 2008). Deutsche Bundesbank Discussion Paper No. 10/2008, Available at SSRN: https://ssrn.com/abstract=1157678 or http://dx.doi.org/10.2139/ssrn.1157678

Ulf D. Slopek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Stefan Reitz (Contact Author)

University of Giessen ( email )

Volkswirtschaftslehre III
Licher Str. 66
D-35394 Giessen
Germany
+49-641-9922114 (Phone)
+49-641-9922119 (Fax)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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