Oil Price Shocks and Economic Growth: The Volatility Link

John Maheu, Yong Song () and Qiao Yang ()
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Qiao Yang: School of Entrepreneurship and Management, ShanghaiTech University, China

Working Paper series from Rimini Centre for Economic Analysis

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. Uncertainty about future growth is considerably lower compared to a benchmark AR(1) model when no oil shocks are present.

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: 2018-02
New Economics Papers: this item is included in nep-ene and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://rcea.org/RePEc/pdf/wp18-03.pdf

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:rim:rimwps:18-03

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