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Oil Price Shocks and Uncertainty: How stable is their relationship over time?

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  • Stavros Degiannakis

    (Department of Economics and Regional Development, Panteion University of Social and Political Sciences)

  • George Filis

    (Department of Accounting, Finance and Economics, Bournemouth University)

  • Sofia Panagiotakopoulou

    (Department of Economics and Regional Development, Panteion University of Social and Political Sciences)

Abstract

This paper investigates the time-varying relationship between economic/financial uncertainty and oil price shocks in the US. A structural VAR (SVAR) model and a time-varying parameter VAR (TVP-VAR) model are estimated, using six indicators that reflect economic and financial uncertainty. The findings from the SVAR model reveal that uncertainty indicators do not respond to supply-side oil shocks, whereas they respond negatively to aggregate demand and oil specific demand shocks. However, the TVP-VAR model shows that the uncertainty responses to the three oil price shocks are heterogeneous both over time and over the different oil price shocks. More specifically, we show that the behaviour of responses changes in the post global financial crisis period, suggesting a shift in the relationship between oil shocks and uncertainty indicators. The findings are important to policy makers and investors, as they provide new insights on the said relationship.

Suggested Citation

  • Stavros Degiannakis & George Filis & Sofia Panagiotakopoulou, 2018. "Oil Price Shocks and Uncertainty: How stable is their relationship over time?," BAFES Working Papers BAFES13, Department of Accounting, Finance & Economic, Bournemouth University.
  • Handle: RePEc:bam:wpaper:bafes13
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    More about this item

    Keywords

    Economic policy uncertainty; financial uncertainty; realized volatility; oil price shock; SVAR; TVP-VAR; US;
    All these keywords.

    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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