Commodity Medium-Term Cycles and Transition to Green Energies: A Markov Switching Model

Abstract

This study uses an AR model with Markov Switching approach to forecast the real growth of copper price using 2 regimes: expansion and contraction. We expect an increase in the demand for metals in the medium term due to the transition to green energies. In the estimated model, we see that the contractive state presents a negative growth, while the expansionary state shows a growth equal to 3.57 percent annually. The filtered and smoothed probabilities show that the real growth of copper is in the expansionary state most of the time (approximately the 82.56 percent of the time of the sample period). Thus, we provide evidence that in the medium-run term (next 20 years), it is expected that the real price of copper grows at the same rate as the expansionary state of its previous medium-run term cycle, which is equal to 3.57 percent annually.This study uses an AR model with Markov Switching approach to forecast the real growth of copper price using 2 regimes: expansion and contraction. We expect an increase in the demand for metals in the medium term due to the transition to green energies. In the estimated model, we see that the contractive state presents a negative growth, while the expansionary state shows a growth equal to 3.57 percent annually. The filtered and smoothed probabilities show that the real growth of copper is in the expansionary state most of the time (approximately the 82.56 percent of the time of the sample period). Thus, we provide evidence that in the medium-run term (next 20 years), it is expected that the real price of copper grows at the same rate as the expansionary state of its previous medium-run term cycle, which is equal to 3.57 percent annually

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Journal of Economics Finance and International Business

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Last time updated on 20/04/2023

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