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Nicoleta Iliescu
''Long-run co-movements between oil prices and rig count in the presence of structural breaks''
( 2018, Vol. 38 No.2 )
In this article, we investigate the existence of long-run common trends (co-movements) shared by the WTI oil prices and the rig count variable in the US. To test for cointegration, we employ the Engle-Granger two-step procedure, the Johansen cointegration test, and the Gregory-Hansen procedure (which takes into account the possibility of structural breaks in the data). Both the Engle-Granger procedure and Johansen tests cannot find cointegration. However, the Gregory-Hansen procedure rejects the hypothesis of no cointegration at 1% in the specification which allows for structural breaks in the constant term, slope coefficients, and the trend term. In addition to cointegration, we examine the existence of any type of Granger-causality running between the two variables of interest. The Granger test identifies a bidirectional causality running between the two variables.
Keywords: oil prices, rig count, structural breaks, cointegration, Granger-causality
JEL: Q4 - Energy: General
C5 - Econometric Modeling: General
Manuscript Received : Apr 04 2018 Manuscript Accepted : Jun 21 2018

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