Markov Switching Oil Price Uncertainty

Oxford Bulletin of Economics and Statistics, Forthcoming

27 Pages Posted: 4 Jan 2019

See all articles by Apostolos Serletis

Apostolos Serletis

University of Calgary - Department of Economics

Libo Xu

University of San Francisco - Department of Economics

Date Written: December 19, 2018

Abstract

We investigate whether the United States economy responds negatively to oil price uncertainty and whether oil price shocks exert asymmetric effects on economic activity. In doing so, we relax the assumption in the existing literature that the data are governed by a single process, modifying the Elder and Serletis (2010) bivariate structural GARCH-in-Mean VAR to accommodate Markov regime switching in order to account for changing oil price dynamics over the sample period. We find evidence of asymmetries, against those macroeconomic theories that predict symmetries in the relationship between real aggregate economic activity and the real price of oil.

Keywords: Oil price uncertainty, Real options, GARCH-in-Mean VAR, Markov switching

JEL Classification: C32, E32, G31

Suggested Citation

Serletis, Apostolos and Xu, Libo, Markov Switching Oil Price Uncertainty (December 19, 2018). Oxford Bulletin of Economics and Statistics, Forthcoming . Available at SSRN: https://ssrn.com/abstract=3304192

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)

Libo Xu

University of San Francisco - Department of Economics ( email )

2130 Fulton Street
San Francisco, CA 94117-1080
United States

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