Dynamic Responses to Oil Price Shocks: Conditional vs Unconditional (A)symmetry

8 Pages Posted: 19 Dec 2015

See all articles by Emir Malikov

Emir Malikov

University of Nevada, Las Vegas

Date Written: September 30, 2015

Abstract

The impulse-response-function-based Wald test has been gaining wide popularity among researchers seeking to formally test for (a)symmetries in dynamic responses of various macroeconomic aggregates to oil price shocks. However, because the IRF-based Wald test is conditional on the magnitude of an oil price shock, it can sometimes prove to be impractical, especially when producing contrasting evidence for shocks of different sizes. To circumvent this problem, this paper suggests considering a nonparametric IRF-density-based test in addition to the Wald. The former allows the analysis of (a)symmetries in dynamic impulse responses to positive and negative oil price shocks of a wide range of magnitudes. The test permits inference about a general tendency of (a)symmetries in impulse responses as opposed to (a)symmetries pertinent to a shock of a given size only. The examined (a)symmetry is thus unconditional of the magnitude of a shock. Importantly, the testing procedure allows accounting for the relative likelihood of observing the disturbance of a given size.

Keywords: Asymmetry, Impulse Response, Job Creation and Destruction, Macroeconomy, Nonlinearity, Oil Price, SVAR

JEL Classification: C32, Q43

Suggested Citation

Malikov, Emir, Dynamic Responses to Oil Price Shocks: Conditional vs Unconditional (A)symmetry (September 30, 2015). Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2705783

Emir Malikov (Contact Author)

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

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