Volatility of Crude Oil Prices before and after the Great Financial Crisis of 2008

Abstract

This paper examines the volatility of the oil price returns before and after the Great Financial crisis of 2008 using plain vanilla GARCH Model. Over a third of the world's energy consumption has been fueled by crude oil, making it one of the most significant fuel sources. Oil shocks have a variety of effects on macroeconomic activities. Sharp swings in the price of oil put off corporate investment because they increase uncertainty, which temporarily lowers output. Analyzing the trends in crude oil prices is essential for guiding the economy's policy and decision-making. This paper tries to forecast the volatility of oil prices for the future and map the trends in oil prices due to a radical shift in the geopolitical dynamics. We tried to create the volatility model for returns before and after 2008 crisis and find which model has more persistent long-term volatility. A plain vanilla GARCH model has been fitted for this purpose.