Oil price shocks and economic growth: The volatility link

John Maheu, Yong Song and Qiao Yang

International Journal of Forecasting, 2020, vol. 36, issue 2, 570-587

Abstract: This paper shows that oil shocks impact economic growth primarily through the conditional variance of growth. Our comparison of models focuses on density forecasts. Over a range of dynamic models, oil shock measures and data, we find a robust link between oil shocks and the volatility of economic growth. We then develop a new measure of oil shocks and show that it is superior to existing measures; it indicates that the conditional variance of growth increases in response to an indicator of the local maximum oil price exceedance. The empirical results uncover a large pronounced asymmetric response of the growth volatility to oil price changes. The uncertainty about future growth is considerably lower than with a benchmark AR(1) model when no oil shocks are present.

Keywords: Bayes factors; Predictive likelihoods; Nonlinear dynamics; Density forecast; MCMC (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Oil Price Shocks and Economic Growth: The Volatility Link (2018)
Working Paper: Oil Price Shocks and Economic Growth: The Volatility Link (2018)
Working Paper: Oil Price Shocks and Economic Growth: The Volatility Link (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:36:y:2020:i:2:p:570-587

DOI: 10.1016/j.ijforecast.2019.07.008

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