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The Effects of Uncertainty about Oil Prices in G-7


  • Don Bredin

    (University College Dublin)

  • John Elder

    (North Dakota State University)

  • Stilianos Fountas

    (University of Macedonia)


The failure of decreases in oil prices to produce expansions that mirror the contractions associated with higher oil prices has been a topic of considerable interest. We investigate for the G-7 one explanation for this feature - the role of uncertainty about oil prices. In particular, we examine the link between oil price uncertainty and industrial production utilizing a very general and °exible empirical methodology that is based on a structural VAR modi¯ed to accommodate multivariate GARCH in mean. Our primary result is that oil price uncertainty has had a negative and signi¯cant e®ect on industrial production in four of the G-7 countries - Canada, France, UK and US. Impulse-response analysis suggests that, in the short-run, both positive and negative oil shocks may be contractionary. Our result helps explain why the sudden collapse in oil prices in the mid-1980's failed to produce rapid expansion in the G-7, and why the steady increases in oil prices from 2003-2007 did not induce recessions.

Suggested Citation

  • Don Bredin & John Elder & Stilianos Fountas, 2010. "The Effects of Uncertainty about Oil Prices in G-7," Working Papers 200840, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:200840

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    References listed on IDEAS

    1. repec:cup:apsrev:v:97:y:2003:i:04:p:567-583_00 is not listed on IDEAS
    2. Arie Kapteyn & James P. Smith & Arthur van Soest, 2007. "Vignettes and Self-Reports of Work Disability in the United States and the Netherlands," American Economic Review, American Economic Association, vol. 97(1), pages 461-473, March.
    3. repec:cup:apsrev:v:98:y:2004:i:01:p:191-207_00 is not listed on IDEAS
    4. Teresa Bago d'Uva & Eddy Van Doorslaer & Maarten Lindeboom & Owen O'Donnell, 2008. "Does reporting heterogeneity bias the measurement of health disparities?," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 351-375.
    5. Lindeboom, Maarten & van Doorslaer, Eddy, 2004. "Cut-point shift and index shift in self-reported health," Journal of Health Economics, Elsevier, vol. 23(6), pages 1083-1099, November.
    6. Arie Kapteyn & James P. Smith & Arthur VanSoest, 2005. "Vignettes and Self Reported Work Disability," Labor and Demography 0511005, EconWPA.
    7. Kristensen, Nicolai & Johansson, Edvard, 2008. "New evidence on cross-country differences in job satisfaction using anchoring vignettes," Labour Economics, Elsevier, vol. 15(1), pages 96-117, February.
    8. Arie Kapteyn & James P. Smith & Arthur van Soest, 2005. "Self-reported Work Disability in the US and The Netherlands," Labor and Demography 0504006, EconWPA.
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    More about this item


    Oil; Volatility; Vector autoregression; Multivariate GARCH-in-Mean VAR.;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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