Uncovering Long Term Relationships between Oil Prices and the Economy: A Time-Varying Cointegration Analysis

29 Pages Posted: 21 Sep 2018

See all articles by Fabian Gogolin

Fabian Gogolin

University of Leeds - Leeds University Business School (LUBS)

Fearghal Kearney

Queen's Management School

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Maurice Peat

The University of Sydney; Financial Research Network (FIRN)

Samuel Vigne

Trinity College (Dublin) - Trinity Business School

Date Written: September 2, 2018

Abstract

Establishing the relation between oil price movements and macroeconomic performance is of great importance for firms and policymakers, alike. Prior studies established this relation using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not hold in practice. To address this issue and go beyond the restrictive time-invariant environment, we employ the use of the time-varying cointegration framework of Bierens 2010. We present evidence of the long-run oil-economy relation evolving over the 1974-2015 period, with major events such as the Gulf War and the financialisation of commodity markets proving to be driving forces across the U.S., European and G7 economies considered.

Keywords: Marcoeconomy, oil prices ,WTI Oil , Brent Oil, long-run

JEL Classification: Q43

Suggested Citation

Gogolin, Fabian and Kearney, Fearghal Joseph and Lucey, Brian M. and Peat, Maurice and Vigne, Samuel, Uncovering Long Term Relationships between Oil Prices and the Economy: A Time-Varying Cointegration Analysis (September 2, 2018). Leeds University Business School Working Paper No. 18-14, QMS Research Paper 2018/04, Available at SSRN: https://ssrn.com/abstract=3242941 or http://dx.doi.org/10.2139/ssrn.3242941

Fabian Gogolin

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Fearghal Joseph Kearney

Queen's Management School ( email )

Riddel Hall
Belfast, Northern Ireland BT9 5EE
Northern Ireland

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Maurice Peat

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Samuel Vigne

Trinity College (Dublin) - Trinity Business School ( email )

Aras an Phiarsaigh
College Green
Dublin, Leinster D2
Ireland

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