Stationarity Changes in Long-Run Fossil Resource Prices: Evidence from Persistence Break Testing

21 Pages Posted: 19 Sep 2011

See all articles by Aleksandar Zaklan

Aleksandar Zaklan

German Institute for Economic Research (DIW Berlin)

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE)

Anne Neumann

German Institute for Economic Research (DIW Berlin)

Date Written: September 19, 2011

Abstract

This paper considers the question of whether changes in persistence have occurred during the long-run evolution of U.S. prices of the non-renewable energy resources crude oil, natural gas and bituminous coal. Our main contribution is to allow for a structural break when testing for a break in persistence, thus disentangling the effect of a deterministic break from that of a stochastic break and advancing the existing literature on the persistence properties of non-renewable resource prices. The results clearly demonstrate the importance of specifying a structural break when testing for breaks in persistence, whereas our findings are robust to the exact date of the structural break. Our analysis yields that coal and natural gas prices are trend stationary throughout their evolution, while oil prices exhibit a break in persistence during the 1970s. The findings suggest that especially the coal market has remained fundamentals-driven, whereas for the oil market exogenous shocks have become dominant. Thus, our results are consequential for the treatment of energy resource prices in both causal analysis and forecasting.

Keywords: non-renewable resource prices, primary energy, persistence, structural breaks

JEL Classification: C12, C22, Q31, Q41

Suggested Citation

Zaklan, Aleksandar and Abrell, Jan and Neumann, Anne, Stationarity Changes in Long-Run Fossil Resource Prices: Evidence from Persistence Break Testing (September 19, 2011). DIW Berlin Discussion Paper No. 1152, Available at SSRN: https://ssrn.com/abstract=1930360

Aleksandar Zaklan (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE) ( email )

8092 Zurich
Switzerland

Anne Neumann

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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