Time-Varying Impact of Geopolitical Risks on Oil Prices

Juncal Cuñado (), Rangan Gupta, Chi Keung Lau and Xin Sheng ()
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Xin Sheng: Huddersfield Business School, University of Huddersfield, Huddersfield, United Kingdom

No 201841, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses the dynamic impact of geopolitical risks (GPRs) on real oil returns for the period February 1974 to August 2017, using a time-varying parameter structural vector autoregressive (TVP-SVAR) model. Besides the two variables of concern, the model also includes growth in world oil production, global economic activity (to capture oil-demand), and world stock returns. We show that GPRs (based on a tally of newspaper articles covering geopolitical tensions), in general, has a significant negative impact on oil returns, primarily due to the decline in oil demand captured by the global economic activity. Our results, thus, highlight the risk of associating all GPRs with oil supply shocks driven by geopolitical tensions in the Middle East, and hence, ending up suggesting that higher GPRs drive up oil prices.

Keywords: Oil markets; geopolitical risks; time-varying parameter structural vector autoregressive (TVP-SVAR) model (search for similar items in EconPapers)
JEL-codes: C32 Q43 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2018-07
New Economics Papers: this item is included in nep-ene and nep-ets
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Citations: View citations in EconPapers (4)

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Journal Article: Time-Varying Impact of Geopolitical Risks on Oil Prices (2020)
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