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Symmetric and asymmetric GARCH estimations of the impact of oil price uncertainty on output growth: evidence from the G7

Author

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  • Rasheed O. Alao

    (University of Abuja)

  • Abdulkareem Alhassan

    (Federal University of Lafia)

  • Saheed Alao

    (Ladoke Akintola University of Technology (LAUTECH))

  • Ifedolapo O. Olanipekun

    (Adeyemi Federal University of Education)

  • Godwin O. Olasehinde-Williams

    (Istanbul Ticaret University)

  • Ojonugwa Usman

    (Istanbul Ticaret University)

Abstract

Crude oil is an essential source of energy. Without access to energy, output growth is impossible. As a result of this link, volatility in oil prices has the ability to induce fluctuations in the output of both developed and developing economies. Moreover, factors such as business cycles and policy changes often introduce nonlinearity into the transmission mechanism of oil price shocks. This study therefore examines not only the interconnectedness of oil price volatility and output growth, but also the nonlinear, asymmetric impact of oil price volatility on output growth in the countries making up the Group of Seven. To this end, monthly data on West Texas Intermediate oil price and industrial production indices of the Group of Seven countries over the period 1990:01 to 2019:08 is used for empirical analysis. The study employs the DCC and cDCC-GARCH techniques for symmetric empirical analysis. The asymmetric empirical analysis is also conducted via GJR-GARCH, FIEGARCH, HYGARCH and cDCC-GARCH techniques. The findings reveal disparities in the magnitudes of the positive and negative (asymmetric) effects of oil price shocks on output growth. The results also reveal that past news and lagged volatility have a significant impact on the current conditional volatility of the output growth of the Group of Seven countries. The study concludes that the impact of oil price volatility on output growth in the selected economies is asymmetric, the volatility is highly persistent and clustered, and the asymmetric GARCH models outperform the symmetric GARCH models.

Suggested Citation

  • Rasheed O. Alao & Abdulkareem Alhassan & Saheed Alao & Ifedolapo O. Olanipekun & Godwin O. Olasehinde-Williams & Ojonugwa Usman, 2023. "Symmetric and asymmetric GARCH estimations of the impact of oil price uncertainty on output growth: evidence from the G7," Letters in Spatial and Resource Sciences, Springer, vol. 16(1), pages 1-14, December.
    • Handle: RePEc:spr:lsprsc:v:16:y:2023:i:1:d:10.1007_s12076-023-00325-z
    DOI: 10.1007/s12076-023-00325-z
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    More about this item

    Keywords

    Oil prices; Industrial production index; Symmetric GARCH; Asymmetric GARCH; G7;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E39 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Other
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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