| By: |
Marc Lammerding;
Patrick Stephan;
Mark Trede;
Bernd Wilfling |
| Abstract: |
Motivated by repeated spikes and crashes during previous decades we
investigate whether the heavily financialized market for crude oil has been
driven by speculative bubbles. In our theoretical modeling we draw on the
convenience yield approach in order to approximate the fundamental value of
the oil price. We separate the oil price fundamental from the bubble component
by expressing a standard present-value oil price model in state-space form. We
then introduce two Markov-regimes into the state-space representation in order
to distinguish between two distinct phases in the bubble process, namely one
in which the oil price bubble is a stable process and one in which the bubble
explodes. We estimate the entire Markov-switching state-space specification
using an econometrically robust Bayesian Markov-Chain-Monte-Carlo (MCMC)
methodology. Based on inferential techniques designed for statistically
separating both Markov-regimes in the bubble process from each other, we find
robust evidence for the existence of speculative bubbles in recent oil price
dynamics. |
| Keywords: |
Speculative bubbles, oil price, Markov-switching model, state-space model, Bayesian econometrics |
| JEL: |
G10 G12 Q40 |
| Date: |
2012–06 |
| URL: |
http://d.repec.org/n?u=RePEc:cqe:wpaper:2312&r=cis |