Oil Price Shocks and Economic Growth: The Volatility Link

John Maheu, Qiao Yang and Yong Song ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper shows that oil shocks primarily impact economic growth through the conditional variance of growth. We move beyond the literature that focuses on conditional mean point forecasts and compare models based 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. A new measure of oil shocks is developed and shown to be superior to existing measures and indicates that the conditional variance of growth increases in response to an indicator of local maximum oil price exceedance. The empirical results uncover a large pronounced asymmetric response of growth volatility to oil price changes.

Keywords: Bayes factors; predictive likelihoods; nonlinear dynamics; density forecast (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 Q43 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-for and nep-gro
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Related works:
Journal Article: Oil price shocks and economic growth: The volatility link (2020)
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:pra:mprapa:83779

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