150 Years of the Oil Price-Macroeconomy Relationship

Macroeconomic Dynamics, Forthcoming

University of Calgary, Department of Economics, Working Paper 2017-01

14 Pages Posted: 10 Jan 2017

See all articles by Apostolos Serletis

Apostolos Serletis

University of Calgary - Department of Economics

Elaheh Asadi Mehmandosti

Alzahra University

Date Written: December 28, 2016

Abstract

We use the longest span data that have ever been studied before (from 1870 to 2014) to investigate the relationship between the price of oil and the level of economic activity in the United States. In the context of a bivariate (identified) structural GARCH-in-Mean VAR in real output growth and the change in the real price of oil, we find that uncertainty about oil prices has had a negative and significant effect on real output. We also find that the responses of real output growth to positive and negative shocks are not very informative of whether they are symmetric or asymmetric, and that accounting for oil price uncertainty tends to amplify the negative dynamic response of real output growth to unfavorable (positive) oil price shocks.

Keywords: Oil Price Volatility, Real Options, Multivariate GARCH-In-Mean VAR

JEL Classification: C32, E32, G31

Suggested Citation

Serletis, Apostolos and Asadi Mehmandosti, Elaheh, 150 Years of the Oil Price-Macroeconomy Relationship (December 28, 2016). Macroeconomic Dynamics, Forthcoming; University of Calgary, Department of Economics, Working Paper 2017-01. Available at SSRN: https://ssrn.com/abstract=2895702 or http://dx.doi.org/10.2139/ssrn.2895702

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

Elaheh Asadi Mehmandosti

Alzahra University ( email )

Vanak
Tehran, 1993891176
Iran

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