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The Asymmetric Effects Of Oil Price Shocks


  • Rahman, Sajjadur
  • Serletis, Apostolos


In this paper we investigate the effects of oil price uncertainty and its asymmetry on real economic activity in the United States, in the context of a bivariate vector autoregression with GARCH-in-mean errors. The model allows for the possibilities of spillovers and asymmetries in the variance–covariance structure for real output growth and the change in the real price of oil. Our measure of oil price uncertainty is the conditional variance of the oil price–change forecast error. We isolate the effects of volatility in the change in the price of oil and its asymmetry on output growth and employ simulation methods to calculate generalized impulse response functions and volatility impulse response functions to trace the effects of independent shocks on the conditional means and the conditional variances, respectively, of the variables. We find that oil price uncertainty has a negative effect on output, and that shocks to the price of oil and its uncertainty have asymmetric effects on output.

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  • Rahman, Sajjadur & Serletis, Apostolos, 2011. "The Asymmetric Effects Of Oil Price Shocks," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 437-471, November.
  • Handle: RePEc:cup:macdyn:v:15:y:2011:i:s3:p:437-471_00

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    References listed on IDEAS

    1. Lutz Kilian & Robert J. Vigfusson, 2011. "Are the responses of the U.S. economy asymmetric in energy price increases and decreases?," Quantitative Economics, Econometric Society, vol. 2(3), pages 419-453, November.
    2. Peter Ferderer, J., 1996. "Oil price volatility and the macroeconomy," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 1-26.
    3. Atsushi Inoue & Lutz Kilian, 2005. "In-Sample or Out-of-Sample Tests of Predictability: Which One Should We Use?," Econometric Reviews, Taylor & Francis Journals, vol. 23(4), pages 371-402.
    4. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    5. Lutz Kilian, 2010. "Explaining Fluctuations in Gasoline Prices: A Joint Model of the Global Crude Oil Market and the U.S. Retail Gasoline Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 87-112.
    6. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2011. "Oil Price Shocks And Industrial Production: Is The Relationship Linear?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 472-497, November.
    7. Lutz Kilian & Logan T. Lewis, 2011. "Does the Fed Respond to Oil Price Shocks?," Economic Journal, Royal Economic Society, vol. 121(555), pages 1047-1072, September.
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    9. Gillman, Max & Nakov, Anton, 2009. "Monetary effects on nominal oil prices," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 239-254, December.
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    12. Apostolos Serletis, 2012. "Oil Price Uncertainty," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8407, January.
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    14. Lance Bachmeier & Qi Li & Dandan Liu, 2008. "Should Oil Prices Receive So Much Attention? An Evaluation Of The Predictive Power Of Oil Prices For The U.S. Economy," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 528-539, October.
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    18. Herrera, Ana María & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The “Great Moderation”," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 107-137, February.
    19. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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