Dynamic spillovers of oil price shocks and economic policy uncertainty

Nikolaos Antonakakis, Ioannis Chatziantoniou, George Filis

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    Abstract

    This study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil–exporting and net oil–importing countries over the period 1997:01–2013:06. To achieve that, an extension of the [16,17] dynamic spillover index based on structural decomposition is employed. The results reveal that economic policy uncertainty (oil price shocks) responds negatively to aggregate demand oil price shocks (economic policy uncertainty shocks). Furthermore, during the Great Recession of 2007–2009, total spillovers increase considerably, reaching unprecedented heights. Moreover, in net terms, economic policy uncertainty becomes the dominant transmitter of shocks between1997 and 2009, while in the post–2009 period there is a significant role for supply–side and oil specific demand shocks, as net transmitters of spillover effects. These results are important for policy makers, as well as, investors interested in the oil market.
    Original languageEnglish
    Pages (from-to)433-447
    JournalEnergy Economics
    Volume44
    DOIs
    Publication statusPublished - 1 May 2014

    Keywords

    • Policy uncertainty
    • Oil price shock
    • Spillover index
    • Structural Vector Autoregression
    • Variance Decomposition
    • Impulse Response Function

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