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Oil prices and economic policy uncertainty: Evidence from a nonparametric panel data model

Abebe Hailemariam, Russell Smyth and Xibin Zhang ()

Energy Economics, 2019, vol. 83, issue C, 40-51

Abstract: We examine the relationship between oil prices and economic policy uncertainty in G7 countries. To do so, we employ a nonparametric panel data technique that allows the trend and coefficient functions to evolve as unknown time-varying functional forms. We also estimate country-specific and common trend functions allowing them to evolve over time. Using monthly data from G7 countries over the period 1997:01–2018:06, we find that the effect of oil prices on economic policy uncertainty is time-varying. Our results show that the estimated time-varying coefficient function of the oil price was negative in years in which increases in oil prices were driven by a surge in global aggregate demand. Further, our nonparametric local linear estimates show that the country-specific and common trend functions are increasing over time. Our findings are robust to endogeneity and alternative specifications.

Keywords: Oil prices; Economic policy uncertainty; Time-varying coefficient function; Nonparametric panel data (search for similar items in EconPapers)
JEL-codes: C14 E30 E60 G18 Q43 Q48 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (107)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:83:y:2019:i:c:p:40-51

DOI: 10.1016/j.eneco.2019.06.010

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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