IIMS Journal of Management Science
Search
1Dr. I. Krishna Murthy currently working as the Associate Professor at the Symbiosis Institute of International Business [SIIB], Symbiosis International University, Pune, India. He can be reached at dr.krishna@siib.ac.in
Rising crude oil prices is the matter of concern for the whole economy, the study of the determinants of crude oil prices is very important to understand the macroeconomic relationship between crude oil and other macroeconomic indices. In this study several macroeconomic variables, viz. gold prices, commodity index CRB, S&P 500, dollar index, GDP of G7 countries, demand for crude oil, OPEC and non-OPEC supply, etc., are considered to study the crude price behaviour. Factor analysis is used to reduce the data variables; ~93% of information is used to identify the crucial factors. In this study Gold price index, CRB index and S&P 500 are identified as suitable factors to study the crude price (WTI). Econometric techniques Engle–Granger causality test and Johansen’s co integration procedures are used to find the co-integration between the crude oil price and aforementioned macroeconomic indices. After selecting the suitable lag length by using the AIC and BIC information criterion, the VAR model is used to determine the direction of causality and for forecasting of crude prices. Finally the casual relationships are validated by the directed acyclic graph (DAG) from the causal analysis software TETRAD IV that confirms the co-integration between the crude price and other macroeconomic factors.
Co-Integration, Factor Analysis, VAR, Causality
JEL Classification: E30, E37, F62
Acharya, R.N. et al. (2008). Southern Agricultural Economics Association Annual Meeting, Dallas, TX, February 2–6.
Cuñado, J. and Fernando, G. (2003). Do oil price shocks matter? Evidence for some European countries, Energy Economics, Vol. 25, pp. 137–154.
Gillman, M. and Nakov, A. (2000). Monetary Effects on Nominal Oil Prices (December 3). Banco de Espana Working Paper No. 0928. Available at SSRN: http://ssrn.com/abstract=1517694 or http://dx.doi.org/ 10.2139/ssrn.1517694.
Graham, S. (2001). The price of gold and stock price indices for the United States, The World Gold Council, Vol. 8, pp 1–16.
Gogoi, P. (2000). Why high-priced oil isn’t sparking inflation, Business Week, Vol. 3704, pp. 52.
Ismail, Y.S. (2009). Forecasting Gold Prices using Multiple Linear Regression Method, American Journal of Applied Sciences Vol. 6, No. 8, pp. 1509-1514.
Johansen, S. (1988). Statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, Vol. 12, pp. 231-254.
Johansen, S. (1991). Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, Econometrica, Econometric Society, Vol. 59, No. 6, pp. 1551-80.
Ho, W.R. J. et al. (2010). The interactive relationship among international gold indices, gold futures and the overall economy, African Journal of Business Management, Vol. 4, No. 9, pp. 1903–1915.
Zhang, Y.J. and Wei, Y.M. (2010). The crude oil market and the gold market: Evidence for cointegration, causality and price discovery, Resource Policy, Vol. 35, No. 3, pp. 168–177.
