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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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    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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