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The oil price-macroeconomy dependence

Author

Listed:
  • Apostolos Serletis

    (University of Calgary)

  • Libo Xu

    (Lakehead University)

Abstract

This paper investigates the relationship between the price of oil and real output in the United States in the context of a Markov regime switching, identified, structural GARCH-in-Mean VAR model with copulas. We use the copula method to investigate the nonlinear dependence structure, as well as (upper and lower) tail dependence, between the price of oil and real output growth, and Markov regime switching to account for changing oil price dynamics over the sample period. We find an asymmetric negative dependence structure between oil price and output growth shocks and that oil price uncertainty has a negative and statistically significant effect on real output growth.

Suggested Citation

  • Apostolos Serletis & Libo Xu, 2023. "The oil price-macroeconomy dependence," Empirical Economics, Springer, vol. 65(6), pages 2501-2520, December.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:6:d:10.1007_s00181-023-02432-8
    DOI: 10.1007/s00181-023-02432-8
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    More about this item

    Keywords

    Oil price uncertainty; Markov regime-switching; Dependence; Copulae;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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