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Oil Price Shocks: Testing for Non-linearity

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    Abstract

    This paper presents evidence of a non-linear relationship between GDP growth and oil price changes in the US economy. We also argue that this non-linearity is not merely due to the use of data from the mid-1980s onwards, as most authors, so far, seem to believe. In fact, we find the existence of non-linearity with the use of data earlier than 1984, and even before 1977. Furthermore, we question that the non-linear transformations of oil prices proposed in the literature are the most appropriate indicators for reflecting such non-linearity

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    File URL: http://www.csef.it/WP/wp115.pdf
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    Bibliographic Info

    Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 115.

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    Date of creation: 01 Mar 2004
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    Publication status: Published in The Energy Journal, 2009, vol. 30, issue 1, pages 1-24
    Handle: RePEc:sef:csefwp:115

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    Keywords: Macroeconomic fluctuations; Oil price shock; Non-linearity;

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    1. Lee, Tae-Hwy & White, Halbert & Granger, Clive W. J., 1993. "Testing for neglected nonlinearity in time series models : A comparison of neural network methods and alternative tests," Journal of Econometrics, Elsevier, vol. 56(3), pages 269-290, April.
    2. James D. Hamilton, 2000. "What is an Oil Shock?," NBER Working Papers 7755, National Bureau of Economic Research, Inc.
    3. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
    4. Herrera, Ana Maria & Hamilton, James D., 2001. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy," University of California at San Diego, Economics Working Paper Series qt4qp0p0v5, Department of Economics, UC San Diego.
    5. Mark A. Hooker, 1999. "Oil and the macroeconomy revisited," Finance and Economics Discussion Series 1999-43, Board of Governors of the Federal Reserve System (U.S.).
    6. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
    7. Bruce E. Hansen, 1995. "Approximate Asymptotic P-Values for Structural Change Tests," Boston College Working Papers in Economics 297., Boston College Department of Economics.
    8. Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics.
    9. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    10. Raymond, Jennie E & Rich, Robert W, 1997. "Oil and the Macroeconomy: A Markov State-Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 193-213, May.
    11. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-84, June.
    12. Mork, Knut Anton, 1989. "Oil and Macroeconomy When Prices Go Up and Down: An Extension of Hamilton's Results," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 740-44, June.
    13. Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July.
    14. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
    15. Lee, Kiseok & Ni, Shawn, 2002. "On the dynamic effects of oil price shocks: a study using industry level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 823-852, May.
    16. Hamilton, James D., 1999. "A Parametric Approach to Flexible Nonlinear Inference," University of California at San Diego, Economics Working Paper Series qt68s8157x, Department of Economics, UC San Diego.
    17. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
    18. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
    19. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
    20. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
    21. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
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    Cited by:
    1. Aliyu, Shehu Usman Rano, 2009. "Oil Price Shocks and the Macroeconomy of Nigeria: A Non-linear Approach," MPRA Paper 18726, University Library of Munich, Germany, revised 16 Nov 2009.

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