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Oil Price Uncertainty and the Macroeconomy

Author

Listed:
  • Triantafyllou, Athanasios
  • Vlastakis, Nikolaos
  • Kellard, Neil

Abstract

This paper examines the impact of oil price uncertainty shocks on economic activity. To do so, we define the uncertainty shock as the unanticipated component of oil price fluctuations. We find that this unanticipated component has a significantly negative and long-lasting impact on economic activity, with its cumulative effect on the US macroeconomy being much larger compared to that of popular uncertainty proxies such as stock market volatility and Economic Policy Uncertainty. Unlike our preferred measure of oil price uncertainty, volatility and the price spikes in oil futures prices present only a small and transitory effect on the real economy. Overall, our findings show that the US economy is significantly impaired when the degree of oil price unpredictability rises, while it is relatively immune to predictable fluctuations in the oil market.

Suggested Citation

  • Triantafyllou, Athanasios & Vlastakis, Nikolaos & Kellard, Neil, 2019. "Oil Price Uncertainty and the Macroeconomy," Essex Finance Centre Working Papers 24735, University of Essex, Essex Business School.
    • Handle: RePEc:esy:uefcwp:24735
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    Keywords

    Oil market; Uncertainty; Realized Variance; Economic Activity;
    All these keywords.

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