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Dynamic responses to oil price shocks: Conditional vs unconditional (a)symmetry

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  • Malikov, Emir

Abstract

The impulse-response-function-based Wald test has been gaining wide popularity among researchers seeking to formally test for (a)symmetries in dynamic responses of various macroeconomic aggregates to oil price shocks. However, because the IRF-based Wald test is conditional on the magnitude of an oil price shock, it can sometimes prove to be impractical, especially when producing contrasting evidence for shocks of different sizes. To circumvent this problem, this paper suggests considering a nonparametric IRF-density-based test in addition to the Wald. The former allows the analysis of (a)symmetries in dynamic impulse responses to positive and negative oil price shocks of a wide range of magnitudes. The test permits inference about a general tendency of (a)symmetries in impulse responses as opposed to (a)symmetries pertinent to a shock of a given size only. The examined (a)symmetry is thus unconditional of the magnitude of a shock. Importantly, the testing procedure allows accounting for the relative likelihood of observing the disturbance of a given size.

Suggested Citation

  • Malikov, Emir, 2016. "Dynamic responses to oil price shocks: Conditional vs unconditional (a)symmetry," Economics Letters, Elsevier, vol. 139(C), pages 31-35.
  • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:31-35
    DOI: 10.1016/j.econlet.2015.11.035
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    References listed on IDEAS

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    Cited by:

    1. Moses Tule & Afees A. Salisu & Charles Chimeke, 2018. "You are what you eat: The role of oil price in Nigeria inflation forecast," Working Papers 040, Centre for Econometric and Allied Research, University of Ibadan.
    2. repec:gok:ijdcv1:v:7:y:2017:i:2:p:97-118 is not listed on IDEAS
    3. repec:eee:energy:v:125:y:2017:i:c:p:97-106 is not listed on IDEAS

    More about this item

    Keywords

    Asymmetry; Impulse response; Job creation and destruction; Nonlinearity; Oil price; SVAR;

    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
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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