Nonlinearities and the order of integration of oil prices

Unit root tests are the starting point of most empirical time series research. This paper analyses the order of integration of oil prices taking into account the possibilities of nonlinearities in the deterministic components. Using an aggregate index for the price of oil, and applying Bierens (1997) unit root tests, we find that the hypothesis of a unit root process is rejected in favour of nonlinear trend stationarity of the price of crude oil. On the contrary, preliminary analysis using Ng and Perron (2001) and Kapetanios, Shin and Snell's (2003) tests, fail to reject the hypothesis of a unit root.