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Endogenous Uncertainty in the Oil Market: A Bayesian Stochastic Volatility-in-Mean Analysis

Author

Listed:
  • Joseph P Byrne
  • Erkal Ersoy

    (Centre for Energy Economics Research and Policy, Heriot-Watt University)

Abstract

There continues to be considerable interest in the relationship between oil market fundamentals, oil prices, and uncertainty. This paper examines the impact of oil market uncertainty shocks upon oil fundamentals and prices. We utilise a Bayesian stochastic volatility-in-mean VAR approach, which endogenously models oil market uncertainty and allows the data to dynamically impact uncertainty. We find evidence that supply uncertainty shocks are linked to demand uncertainty, and that supply shocks are associated with a fairly pronounced increase in oil price uncertainty.

Suggested Citation

  • Joseph P Byrne & Erkal Ersoy, 2020. "Endogenous Uncertainty in the Oil Market: A Bayesian Stochastic Volatility-in-Mean Analysis," CEERP Working Paper Series 012, Centre for Energy Economics Research and Policy, Heriot-Watt University.
  • Handle: RePEc:hwc:wpaper:012
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    References listed on IDEAS

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    More about this item

    Keywords

    Oil Prices; Endogenous Uncertainty; Bayesian VAR; Stochastic Volatility-in-Mean.;
    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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