150 Years of the Oil Price-Macroeconomy Relationship
University of Calgary, Department of Economics, Working Paper 2017-01
14 Pages Posted: 10 Jan 2017
Date Written: December 28, 2016
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
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