Does Oil Price Uncertainty Affect Economic Activity?
Gerard H. Kuper
University of Groningen - Faculty of Economics and Business
Daan Van Soest
Tilburg University - CentER & Department of Economics
The change in investment and output in response to changing energy prices depends on whether energy prices increase or decrease. In the literature, this asymmetry is attributed to irreversibility of investment and uncertainty with respect to energy prices. The empirical literature does not explicitly take uncertainty into account. In this paper we measure oil price uncertainty as the time-varying conditional standard deviations from univariate GARCH models using high-frequency data and estimate the effect of uncertainty. On average, the effects of uncertainty on energy use and energy intensity are larger if energy prices drop.
Number of Pages in PDF File: 50
Keywords: Volatility, Uncertainty, GARCH, Oil prices
JEL Classification: C22, Q43working papers series
Date posted: May 13, 2003
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