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The Long-Run Evolutions of Energy Prices

Abstract:
In this paper I examine the long-run behavior of oil, coal, and natural gas prices, using up to 127 years of data, and address the following questions: Mat does over a century of data tell us about the stochastic dynamics of price evolution, and how it should be modelled? Can models of reversion to stochastically fluctuating trend lines help us forecast prices over horizons of 20 years or more? And what do the answers to these questions tell us about investment decisions that are dependent on prices and their stochastic evolution ?

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Forecasting and Market Analysis; Natural Gas – Markets and Prices; Electricity – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
D4 -
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Energy prices, oil, coal, natural gas, long-run price behavior, Kalman filter, forecasting

DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No2-1


Published in Volume20, Number 2 of The bi-monthly Journal of the IAEE's Energy Economics Education Foundation.