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Lutz Kilian - One of the best experts on this subject based on the ideXlab platform.
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are the responses of the u s economy asymmetric in Energy Price increases and decreases
Quantitative Economics, 2011Co-Authors: Lutz Kilian, Robert J. VigfussonAbstract:How much does real gross domestic product (GDP) respond to unanticipated changes in the real Price of oil? Commonly used censored oil Price vector autoregressive models suggest a substantial decline in real GDP in response to unexpected increases in the real Price of oil, yet no response to unexpected declines. We show that these estimates are invalid. Based on a structural model that encompasses both symmetric and asymmetric models as special cases, correctly computed impulse responses are of roughly the same magnitude in either direction, consistent with formal tests for symmetric responses. We discuss implications for theoretical models and for policy responses to Energy Price shocks.
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pitfalls in estimating asymmetric effects of Energy Price shocks
Social Science Research Network, 2009Co-Authors: Lutz Kilian, Robert J. VigfussonAbstract:A common view in the literature on the transmission of Energy Price shocks is that the effect of Energy Price shocks on macroeconomic aggregates such as output or employment is asymmetric in Energy Price increases and decreases. This perception has been bolstered by regression evidence that Energy Price increases (obtained by censoring percent changes in the Price of Energy to exclude Energy Price decreases) appear to have disproportionately larger effects on macroeconomic aggregates than decreases. We first show that commonly used asymmetric models of the transmission of Energy Price shocks are misspecified, resulting in inconsistent parameter estimates, and that the implied impulse responses have been routinely computed incorrectly. As a result, the quantitative importance of Energy Price increases for the U.S. economy has been exaggerated in the literature. Second, we develop alternative regression models, estimation methods and methods of computing responses to Energy Price shocks that yield consistent estimates regardless of the degree of asymmetry. Third, we develop improved tests of the null hypothesis of symmetry in the responses to Energy Price increases and decreases. We also develop symmetry tests for models involving net changes in Energy Prices. Fourth, an empirical study reveals little evidence against the null hypothesis of symmetry. Our analysis has important implications for the theoretical literature on the transmission of Energy Price shocks and for the debate about policy responses to Energy Price shocks. The practical importance of our analysis is illustrated by presenting alternative estimates of the effects of falling oil Prices on U.S. real GDP since mid-2008.
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Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks
SSRN Electronic Journal, 2009Co-Authors: Lutz Kilian, Robert J. VigfussonAbstract:A common view in the literature is that the effect of Energy Price shocks on macroeconomic aggregates is asymmetric in Energy Price increases and decreases. We show that widely used asymmetric vector autoregressive models of the transmission of Energy Price shocks are misspecified, resulting in inconsistent parameter estimates, and that the implied impulse responses have been routinely computed incorrectly. As a result, the quantitative importance of unanticipated Energy Price increases for the U.S. economy has been exaggerated. In response to this problem, we develop alternative regression models and methods of computing responses to Energy Price shocks that yield consistent estimates regardless of the degree of asymmetry. We also introduce improved tests of the null hypothesis of symmetry in the responses to Energy Price increases and decreases. An empirical study reveals little evidence against the null hypothesis of symmetry in the responses to Energy Price shocks. Our analysis also has direct implications for the theoretical literature on the transmission of Energy Price shocks and for the debate about policy responses to Energy Price shocks.
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How sensitive are consumer expenditures to retail Energy Prices
Journal of Monetary Economics, 2009Co-Authors: Paul Edelstein, Lutz KilianAbstract:There is growing evidence that the primary effect of Energy Price shocks on the U.S. economy involves a reduction in consumer spending. We quantify the direct effect on real consumption of unanticipated changes in discretionary income, shifts in precautionary savings, and changes in the operating cost of Energy-using durables. The possibility of asymmetries in the response of real consumption to Energy Price shocks is also considered. We demonstrate that linear models are consistent with the symmetric behavior of real consumption in 1979 (when Energy Prices increased sharply) and in 1986 (when they fell sharply). It is shown that historically Energy Price shocks have been an important factor in explaining U.S. real consumption growth, but by no means the dominant factor.
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The Economic Effects of Energy Price Shocks
Journal of Economic Literature, 2008Co-Authors: Lutz KilianAbstract:Large fluctuations in Energy Prices have been a distinguishing characteristic of the U.S. economy since the 1970s. Turmoil in the Middle East, rising Energy Prices in the U.S. and evidence of global warming recently have reignited interest in the link between Energy Prices and economic performance. This paper addresses a number of the key issues in this debate: What are Energy Price shocks and where do they come from? How responsive is Energy demand to changes in Energy Prices? How do consumers’ expenditure patterns evolve in response to Energy Price shocks? How do Energy Price shocks affect real output, inflation, stock markets and the balance-of-payments? Why do Energy Price increases seem to cause recessions, but Energy Price decreases do not seem to cause expansions? Why has there been a surge in gasoline Prices in recent years? Why has this new Energy Price shock not caused a recession so far? Have the effects of Energy Price shocks waned since the 1980s and, if so, why? As the paper demonstrates, it is critical to account for the endogeneity of Energy Prices and to differentiate between the effects of demand and supply shocks in Energy markets, when answering these questions.
Angelia L Grant - One of the best experts on this subject based on the ideXlab platform.
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modeling Energy Price dynamics garch versus stochastic volatility
Energy Economics, 2016Co-Authors: Joshua C C Chan, Angelia L GrantAbstract:We compare a number of GARCH and stochastic volatility (SV) models using nine series of oil, petroleum product and natural gas Prices in a formal Bayesian model comparison exercise. The competing models include the standard models of GARCH(1,1) and SV with an AR(1) log-volatility process and more flexible models with jumps, volatility in mean and moving average innovations. We find that: (1) SV models generally compare favorably to their GARCH counterparts; (2) the jump component substantially improves the performance of the standard GARCH, but is unimportant for the SV model; (3) the volatility feedback channel seems to be superfluous; and (4) the moving average component markedly improves the fit of both GARCH and SV models. Overall, the SV model with moving average innovations is the best model for all nine series.
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modeling Energy Price dynamics garch versus stochastic volatility
Energy Economics, 2016Co-Authors: Joshua C C Chan, Angelia L GrantAbstract:We compare a number of GARCH and stochastic volatility (SV) models using nine series of oil, petroleum product and natural gas Prices in a formal Bayesian model comparison exercise. The competing models include the standard models of GARCH(1,1) and SV with an AR(1) log-volatility process, as well as more flexible models with jumps, volatility in mean, leverage effects, and t distributed and moving average innovations. We find that: (1) SV models generally compare favorably to their GARCH counterparts; (2) the jump component and t distributed innovations substantially improve the performance of the standard GARCH, but are unimportant for the SV model; (3) the volatility feedback channel seems to be superfluous; (4) the moving average component markedly improves the fit of both GARCH and SV models; and (5) the leverage effect is important for modeling crude oil Prices—West Texas Intermediate and Brent—but not for other Energy Prices. Overall, the SV model with moving average innovations is the best model for all nine series.
Joshua C C Chan - One of the best experts on this subject based on the ideXlab platform.
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modeling Energy Price dynamics garch versus stochastic volatility
Energy Economics, 2016Co-Authors: Joshua C C Chan, Angelia L GrantAbstract:We compare a number of GARCH and stochastic volatility (SV) models using nine series of oil, petroleum product and natural gas Prices in a formal Bayesian model comparison exercise. The competing models include the standard models of GARCH(1,1) and SV with an AR(1) log-volatility process and more flexible models with jumps, volatility in mean and moving average innovations. We find that: (1) SV models generally compare favorably to their GARCH counterparts; (2) the jump component substantially improves the performance of the standard GARCH, but is unimportant for the SV model; (3) the volatility feedback channel seems to be superfluous; and (4) the moving average component markedly improves the fit of both GARCH and SV models. Overall, the SV model with moving average innovations is the best model for all nine series.
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modeling Energy Price dynamics garch versus stochastic volatility
Energy Economics, 2016Co-Authors: Joshua C C Chan, Angelia L GrantAbstract:We compare a number of GARCH and stochastic volatility (SV) models using nine series of oil, petroleum product and natural gas Prices in a formal Bayesian model comparison exercise. The competing models include the standard models of GARCH(1,1) and SV with an AR(1) log-volatility process, as well as more flexible models with jumps, volatility in mean, leverage effects, and t distributed and moving average innovations. We find that: (1) SV models generally compare favorably to their GARCH counterparts; (2) the jump component and t distributed innovations substantially improve the performance of the standard GARCH, but are unimportant for the SV model; (3) the volatility feedback channel seems to be superfluous; (4) the moving average component markedly improves the fit of both GARCH and SV models; and (5) the leverage effect is important for modeling crude oil Prices—West Texas Intermediate and Brent—but not for other Energy Prices. Overall, the SV model with moving average innovations is the best model for all nine series.
Tinghuan Chang - One of the best experts on this subject based on the ideXlab platform.
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threshold effect of the economic growth rate on the renewable Energy development from a change in Energy Price evidence from oecd countries
Energy Policy, 2009Co-Authors: Tinghuan Chang, Chienming Huang, Mingchih LeeAbstract:This paper uses a panel threshold regression (PTR) model to investigate the influence that Energy Prices have on renewable Energy development under different economic growth rate regimes. The empirical data are obtained from each of the OECD member-countries over the period from 1997 to 2006. We show that there is one threshold in the regression relationship, which is 4.13% of a one-period lag in the annual gross domestic product (GDP) growth rate. The consumer Price index (CPI), in so far as it relates to variations in Energy, is significantly positively correlated with the contribution of renewables to Energy supply in the regime with higher-economic growth, but there is no relationship in the regime with lower economic growth. Therefore, countries characterized by high-economic growth are able to respond to high Energy Prices with increases in renewable Energy use, while countries characterized by low-economic growth countries tend to be unresponsive to Energy Price changes when they come to their level of renewable Energy.
Mingchih Lee - One of the best experts on this subject based on the ideXlab platform.
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threshold effect of the economic growth rate on the renewable Energy development from a change in Energy Price evidence from oecd countries
Energy Policy, 2009Co-Authors: Tinghuan Chang, Chienming Huang, Mingchih LeeAbstract:This paper uses a panel threshold regression (PTR) model to investigate the influence that Energy Prices have on renewable Energy development under different economic growth rate regimes. The empirical data are obtained from each of the OECD member-countries over the period from 1997 to 2006. We show that there is one threshold in the regression relationship, which is 4.13% of a one-period lag in the annual gross domestic product (GDP) growth rate. The consumer Price index (CPI), in so far as it relates to variations in Energy, is significantly positively correlated with the contribution of renewables to Energy supply in the regime with higher-economic growth, but there is no relationship in the regime with lower economic growth. Therefore, countries characterized by high-economic growth are able to respond to high Energy Prices with increases in renewable Energy use, while countries characterized by low-economic growth countries tend to be unresponsive to Energy Price changes when they come to their level of renewable Energy.