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Crude Oil Price Volatility and Domestic Price Responses in Developing Countries, Accounting for Asymmetry and Uncertainty

Zakaria Zoundi ()

Economics Bulletin, 2017, vol. 37, issue 4, 2466-2482

Abstract: In an attempt to expand on the existing literature on the effect of oil price spillover, this study analyses the impact of oil price volatility on domestic prices in several oil-producing and non-oil-producing developing countries. Focusing on Burkina Faso, Cote d'Ivoire, Niger, Ghana and Nigeria, the analysis tests the null hypothesis of symmetrical responses of domestic prices to news, in addition to the impact of oil price uncertainty on domestic prices. The sign and size-bias tests and the VAR-GARCH model with effect in mean are selected for the analysis. The results indicate evidence of asymmetry in the response of domestic prices to shocks, irrespective of the country's oil resources. The bias in the volatility response of domestic price is driven by the positive size of the shocks rather than the negative size or the sign of the shocks. Furthermore, uncertainty of oil price has a positive and significant effect on domestic prices. The degree of the impact of oil price uncertainty on domestic prices appears positively correlated with the country's oil reserves.

Keywords: Oil price volatility; Asymmetry; Uncertainty; VAR-GARCH-M; Developing countries (search for similar items in EconPapers)
JEL-codes: Q4 E3 (search for similar items in EconPapers)
Date: 2017-11-19
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