Boom-bust cycles in oil consumption: The role of explosive bubbles and asymmetric adjustments

This study provides a new and comprehensive investigation of the explosivity and stochastic characteristics of historical oil consumption per capita using double recursive procedures and hybrid unit root test techniques. Unlike previous studies, we consider both state-dependent (SD) nonlinearity and time-dependent (TD) nonlinearity in analyzing the persistence of shocks to oil consumption from a historical perspective. The sample covers fourteen countries' oil consumption data from 1890 to 2017. We observe multiple periods of explosivity in oil consumption per capita with the over-sensitivity of oil consumption to political, military, financial, and economic shocks. Unlike the 2000s, we show that oil consumption has not experienced any episodes of explosiveness during the 1990s. Furthermore, we demonstrate that oil consumption has a hybrid structure characterized by both SD and TD nonlinearities. Based on this hybrid structure, we find strong confirmation that oil consumption per capita follows a stationary path with a nonlinear asymmetric adjustment and a long memory structural break. Our findings show that the breakpoints observed in oil consumption data coincide with episodes of bubbles, suggesting a boom-bust cycle in oil consumption. • Breakpoints in oil consumption data coincide with episodes of bubbles. • Long historical data from 1890 used to study the stochastic characteristics of oil consumption. • Over-sensitivity of oil consumption to political, financial, and economic shocks. • Oil consumption has a hybrid structure characterized by time-dependent and state-dependent nonlinearity.