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Understanding the US natural gas market: A Markov switching VAR approach

Citation

Hou, C and Nguyen, BH, Understanding the US natural gas market: A Markov switching VAR approach, Energy Economics, 75 pp. 42-53. ISSN 0140-9883 (2018) [Refereed Article]

Copyright Statement

Copyright 2018 Crown Copyright

DOI: doi:10.1016/j.eneco.2018.08.004

Abstract

Over the past three decades, the US natural gas market has witnessed significant changes. Utilizing a standard Bayesian model comparison method, this paper formally determines four regimes existing in the market. It then employs a Markov switching vector autoregressive model to investigate the regimedependent responses of the market to its fundamental shocks. The results reveal that the US natural gas market tends to be much more sensitive to shocks occurring in regimes existing after the Decontrol Act 1989 than the other regimes. The paper also finds that shocks to the natural gas demand and price have negligible effects on natural gas production while the price of natural gas is mainly driven by specific demand shocks. Augmenting the model by incorporating the price of crude oil, the results show that the impacts of oil price shocks on natural gas prices are relatively small and regime-dependent.

Item Details

Item Type:Refereed Article
Keywords:MS-VAR, US gas market, natural gas market, bayesian model comparison, Markov switching VAR model
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Macroeconomics not elsewhere classified
UTAS Author:Nguyen, BH (Dr Bao Nguyen)
ID Code:141224
Year Published:2018
Web of Science® Times Cited:9
Deposited By:Economics and Finance
Deposited On:2020-10-05
Last Modified:2020-11-10
Downloads:0

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