Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and Non-US Oil Production

38 Pages Posted: 17 Jan 2017

See all articles by Wensheng Kang

Wensheng Kang

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance

Joaquin Vespignani

University of Tasmania - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2017

Abstract

Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges about the US CPI and about federal/state/local government expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall variation of the CPI forecaster disagreement. Disaggregation of oil production shocks into US and non-US oil production yield novel results. Oil supply shocks identified by US and non-US origins explain as much of the variation in economic policy uncertainty as structural shocks on the demand side of the oil market.

Keywords: US oil production, Economic policy uncertainty, CPI forecast uncertainty, Structural VAR

JEL Classification: E44, G12, Q43

Suggested Citation

Kang, Wensheng and Ratti, Ronald A. and Vespignani, Joaquin, Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and Non-US Oil Production (January 15, 2017). CAMA Working Paper No. 7/2017 , Available at SSRN: https://ssrn.com/abstract=2899963 or http://dx.doi.org/10.2139/ssrn.2899963

Ronald A. Ratti

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Joaquin Vespignani (Contact Author)

University of Tasmania - School of Economics and Finance ( email )

Commerce Building,
Sandy Bay Campus
Sandy Bay, TAS, Tasmania 7005
Australia

No contact information is available for Wensheng Kang

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