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Structural oil price shocks and policy uncertainty

  • Kang, Wensheng
  • Ratti, Ronald A.

Increases in the real price of oil not explained by changes in global oil production or by global real demand for commodities are associated with significant increases in economic policy uncertainty. Oil-market specific demand shocks account for 30% of conditional variation in economic policy uncertainty and 21.5% of conditional variation in CPI forecast interquartile range after 24 months. Positive shocks due to global real aggregate demand for commodities significantly reduce economic policy uncertainty. Structural oil price shocks appear to have long-term consequences for economic policy uncertainty, and to the extent that the latter has impact on real activity the policy connection provides an additional channel by which oil price shocks have influence on the economy. As a robustness check, structural oil price shocks are significantly associated with economic policy uncertainty in Europe and energy-exporting Canada.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49007.

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Date of creation: 07 Apr 2013
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Handle: RePEc:pra:mprapa:49007
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