An Identification-Robust Test for Time-Varying Parameters in the Dynamics of Energy Prices

39 Pages Posted: 7 Mar 2011

See all articles by Marie-Claude Beaulieu

Marie-Claude Beaulieu

Laval University - Centre de recherche en économie et finance appliquée (CRÉFA)

Lynda Khalaf

Carleton University

Maral Kichian

Government of Canada - Bank of Canada

Jean-Marie Dufour

McGill University

Date Written: March 4, 2011

Abstract

We test for the presence of time-varying parameters (TVP) in the long-run dynamics of energy prices for oil, natural gas and coal, within a standard class of mean-reverting models. We also propose residual-based diagnostic tests and examine out-of-sample forecasts. In-sample LR tests support the TVP model for coal and gas but not for oil, though companion diagnostics suggest that the model is too restrictive to conclusively fit the data. Out-of-sample analysis suggests a randomwalk specification for oil price, and TVP models for both real-time forecasting in the case of gas and long-run forecasting in the case of coal.

Keywords: structural change, time-varying parameter, energy prices, coal, gas, crude oil, unidentified nuisance parameter, exact test, Monte Carlo test, Kalman filter, normality test

JEL Classification: C22, C52, C53, Q40

Suggested Citation

Beaulieu, Marie-Claude and Khalaf, Lynda and Kichian, Maral and Dufour, Jean-Marie, An Identification-Robust Test for Time-Varying Parameters in the Dynamics of Energy Prices (March 4, 2011). CIRANO Scientific Publication No. 2011s-22, Available at SSRN: https://ssrn.com/abstract=1777202 or http://dx.doi.org/10.2139/ssrn.1777202

Marie-Claude Beaulieu

Laval University - Centre de recherche en économie et finance appliquée (CRÉFA) ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

Lynda Khalaf

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

Maral Kichian

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Jean-Marie Dufour (Contact Author)

McGill University ( email )

Department of Economics, McGill University
Leacock Building Room 443, 855 Sherbrooke West
Montreal, Quebec H3A 2T7
Canada
(1) 514 398 6071 (Phone)
(1) 514 398 4800 (Fax)

HOME PAGE: http://www.jeanmariedufour.com

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