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

Joseph Byrne and Erkal Ersoy

No 12, CEERP Working Paper Series from 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.

Keywords: Oil Prices; Endogenous Uncertainty; Bayesian VAR; Stochastic Volatility-in-Mean. (search for similar items in EconPapers)
JEL-codes: C32 E32 Q43 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2020-11
New Economics Papers: this item is included in nep-ene, nep-mac and nep-ore
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http://ceerp.hw.ac.uk/RePEc/hwc/wpaper/012.pdf First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:hwc:wpaper:012

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