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Oil market uncertainty and international business cycle dynamics

Author

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  • Yin, Libo
  • Feng, Jiabao

Abstract

This paper sets out to identify the dynamic relationship between oil market uncertainty and international business cycle. Firstly, we implement the Granger causality linear tests and document significant linear causal relation. Then we perform the nonlinear tests, which, on the contrary, do not exhibit significant evidence of nonlinear relation between oil market uncertainty and the business cycle indicators. Further we perform the dynamic panel analysis utilizing the Arellano-Bond GMM procedure and find that oil volatility risk premium (VRP) has a significant leading effect on the output growth even controlling for country specific characters and other classic pricing factors of stock markets. Further, the impulse responses indicate that the shock of innovation in oil market uncertainty can boost the output growth within half a year and this effect will be absorbed gradually over time. Overall, oil market uncertainty does have a linear leading effect on the international business cycle.

Suggested Citation

  • Yin, Libo & Feng, Jiabao, 2019. "Oil market uncertainty and international business cycle dynamics," Energy Economics, Elsevier, vol. 81(C), pages 728-740.
    • Handle: RePEc:eee:eneeco:v:81:y:2019:i:c:p:728-740
    DOI: 10.1016/j.eneco.2019.05.013
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    Citations

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    Cited by:

    1. Yin, Libo & Su, Zhi & Lu, Man, 2022. "Is oil risk important for commodity-related currency returns?," Research in International Business and Finance, Elsevier, vol. 60(C).
    2. Ma, Xiaohan & Samaniego, Roberto, 2020. "The macroeconomic impact of oil earnings uncertainty: New evidence from analyst forecasts," Energy Economics, Elsevier, vol. 90(C).
    3. Śmiech, Sławomir & Papież, Monika & Rubaszek, Michał & Snarska, Małgorzata, 2021. "The role of oil price uncertainty shocks on oil-exporting countries," Energy Economics, Elsevier, vol. 93(C).
    4. Dąbrowski, Marek A. & Papież, Monika & Rubaszek, Michał & Śmiech, Sławomir, 2022. "The role of economic development for the effect of oil market shocks on oil-exporting countries. Evidence from the interacted panel VAR model," Energy Economics, Elsevier, vol. 110(C).

    More about this item

    Keywords

    Oil volatility; Volatility risk premium (VRP); Business cycle; Linear and nonlinear causality tests; Heterogeneous panel causality;
    All these keywords.

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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