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The Effect of Oil Uncertainty Shock on Real GDP of 33 Countries: A Global VAR Approach

Afees Salisu (), Rangan Gupta () and Abeeb Olaniran ()
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Abeeb Olaniran: Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria

No 202153, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we investigate the effect of oil price uncertainty shock on real Gross Domestic Product (GDP) of 33 developed and emerging economies using the Global Vector Autoregressive (VAR) framework that allows us to capture the transmission of global shocks while simultaneously accounting for distinct characteristics of individual countries. Utilizing quarterly data over the period of 1980Q1 to 2019Q2, we show that, in general, oil price uncertainty shock has a statistically significant negative impact on GDP for 28 out of the 33 countries, but with varying magnitude and persistence. Overall though, we find the adverse effect on real GDP to be relatively stronger for the developed group of countries than the emerging ones. Hence, our results suggest that policymakers must be ready to undertake expansionary policies (of varying order) in the wake of an oil price uncertainty shock to prevent deep recessions, except in the cases of Norway, Philippines and Saudi Arabia, for which output tends to increase in a statistically significant manner.

Keywords: Oil price uncertainty shock; Real GDP; GVAR (search for similar items in EconPapers)
JEL-codes: C32 E32 Q02 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2021-07
New Economics Papers: this item is included in nep-cwa, nep-ene, nep-isf, nep-mac and nep-sea
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