ACIX Model with Interval Dummy Variables and Its Application in Forecasting Interval-valued Crude Oil Prices

Abstract

In this paper, we develop the interval dummy variables. In associated with the autoregressive conditional interval models with exogenous explanatory interval variables (ACIX), we explore the influences of the sub-prime financial crisis and the European debt crisis on crude oil prices with the proposed interval dummy variables. Hypothesis tests on the interval dummy variables suggest that the European debt crisis has little impact on the level of crude oil prices, while it reduces the range of crude oil prices. On the other hand, we find that the sub-prime financial crisis has signifi impact on the lower bound of crude oil prices and it increases the volatility of crude oil prices as well. Moreover, the effect of speculation on crude oil prices is not statistically significant in the short run, but is significant in the long run. In addition, our estimation is robust for the choices of Kernel K.