Volatility in natural resources commodity prices: Evaluating volatility in oil and gas rents

ABSTRACT

The current study investigates volatility in natural resources commodity prices by estimating volatility in oil rents, natural gas rents, and total natural resources rents. This study utilized data for two developed economies, namely Japan and the United Kingdom (UK), covering the period from 1990 to 2020. In order to analyze volatility, we utilized autoregressive conditional heteroscedasticity (ARCH), threshold generalized autoregressive conditional heteroscedasticity [TGARCH(1, 1)], and exponential generalized autoregressive conditional heteroscedasticity [EGARCH(1, 1)] specifications. The empirical findings reveal that only natural gas is volatile in Japan. Also, natural gas showed asymmetry, where negative shock severely affects natural gas volatility. In the case of the UK, all the three rents are found volatile. However, oil rents and total natural resources rents are symmetric throughout the period. While natural gas rents are asymmetric, the negative shock highly influences volatility during the study period. Besides, there is a negative association of current variance with the past variances of natural gas rents. Based on the empirical findings, this study suggests the stabilization of the financial system, recovery from the Covid-19 pandemic crisis, adoption of price ceiling policies, and regulation of natural resources prices.