Oil Price Uncertainty and the Macroeconomy

Athanasios Triantafyllou, Nikolaos Vlastakis and Neil Kellard ()

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: This paper examines the impact of oil price uncertainty shocks on economic activity. To do so, we define the uncertainty shock as the unanticipated component of oil price fluctuations. We find that this unanticipated component has a significantly negative and long-lasting impact on economic activity, with its cumulative effect on the US macroeconomy being much larger compared to that of popular uncertainty proxies such as stock market volatility and Economic Policy Uncertainty. Unlike our preferred measure of oil price uncertainty, volatility and the price spikes in oil futures prices present only a small and transitory effect on the real economy. Overall, our findings show that the US economy is significantly impaired when the degree of oil price unpredictability rises, while it is relatively immune to predictable fluctuations in the oil market.

Keywords: Oil market; Uncertainty; Realized Variance; Economic Activity (search for similar items in EconPapers)
Date: 2019-05-23
New Economics Papers: this item is included in nep-ene and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:24735

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