Cyclical Properties of Supply-Side and Demand-Side Shocks in Oil-Based Commodity Markets

22 Pages Posted: 23 Mar 2016 Last revised: 15 Oct 2017

See all articles by Tomas Krehlik

Tomas Krehlik

Charles University in Prague; Academy of Sciences of the Czech Republic

Jozef Baruník

Charles University in Prague - Department of Economics; Institute of Information Theory and Automation, Prague

Date Written: January 31, 2017

Abstract

Oil markets profoundly influence world economies through determination of prices of energy and transports. Using novel methodology devised in frequency domain, we study the information transmission mechanisms in oil-based commodity markets. Taking crude oil as a supply-side benchmark and heating oil and gasoline as demand-side benchmarks, we document new stylized facts about cyclical properties of the transmission mechanism generated by volatility shocks with heterogeneous frequency responses. Our first key finding is that shocks to volatility with response shorter than one week are increasingly important to the transmission mechanism over the studied period. Second, demand-side shocks to volatility are becoming increasingly important in creating short-run connectedness. Third, the supply-side shocks to volatility resonating in both the long run and short run are important sources of connectedness.

Suggested Citation

Krehlik, Tomas and Barunik, Jozef, Cyclical Properties of Supply-Side and Demand-Side Shocks in Oil-Based Commodity Markets (January 31, 2017). Energy Economics, Vol. 65, 2017, Available at SSRN: https://ssrn.com/abstract=2753339 or http://dx.doi.org/10.2139/ssrn.2753339

Tomas Krehlik

Charles University in Prague ( email )

Praha 1
Czech Republic

Academy of Sciences of the Czech Republic ( email )

Narodni 3, 111 42
Praha 1, 117 20
Czech Republic

Jozef Barunik (Contact Author)

Charles University in Prague - Department of Economics ( email )

Opletalova 26
Prague 1, 110 00
Czech Republic

HOME PAGE: http://ies.fsv.cuni.cz/en/staff/barunik

Institute of Information Theory and Automation, Prague ( email )

Pod vodarenskou vezi 4
CZ-18208 Praha 8
Czech Republic

HOME PAGE: http://staff.utia.cas.cz/barunik/home.htm

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