Shu, Haicheng and Spencer, Peter orcid.org/0000-0002-5595-5360 (2023) Oil Prices in the Real Economy. Journal of Applied Econometrics. pp. 878-897. ISSN 0883-7252
Abstract
This paper presents a macro-finance model of the US economy and the spot and futures markets for oil. The performance of the model is greatly enhanced by using the Kalman filter to model latent variables representing the inflation asymptote, the real price of oil and the slope of the futures curve. We find that these are dominated by innovations in observed futures prices, reflecting the importance of market expectations. Using the Kalman filter to capture inflationary shocks helps solve the notorious price puzzle, the tendency for increases in interest rates to anticipate such developments and apparently cause inflation. Futures prices also depend upon risk premiums, which we find are dominated by the latent variable representing the real oil price rather than macro variables like inflation and interest rates.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2023 John Wiley & Sons, Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details. |
Keywords: | affine term structure model,macro finance model,oil futures contracts,oil price,spanned macro factor risk |
Dates: |
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Institution: | The University of York |
Academic Units: | The University of York > Faculty of Social Sciences (York) > Economics and Related Studies (York) |
Depositing User: | Pure (York) |
Date Deposited: | 02 May 2023 10:10 |
Last Modified: | 16 Oct 2024 19:11 |
Published Version: | https://doi.org/10.1002/jae.2986 |
Status: | Published online |
Refereed: | Yes |
Identification Number: | 10.1002/jae.2986 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:198764 |
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