Does Oil Price Uncertainty Affect Economic Activity?

50 Pages Posted: 13 May 2003

See all articles by Gerard H. Kuper

Gerard H. Kuper

University of Groningen - Faculty of Economics and Business

Daan van Soest

Tilburg University - CentER & Department of Economics

Date Written: February 2003

Abstract

The change in investment and output in response to changing energy prices depends on whether energy prices increase or decrease. In the literature, this asymmetry is attributed to irreversibility of investment and uncertainty with respect to energy prices. The empirical literature does not explicitly take uncertainty into account. In this paper we measure oil price uncertainty as the time-varying conditional standard deviations from univariate GARCH models using high-frequency data and estimate the effect of uncertainty. On average, the effects of uncertainty on energy use and energy intensity are larger if energy prices drop.

Keywords: Volatility, Uncertainty, GARCH, Oil prices

JEL Classification: C22, Q43

Suggested Citation

Kuper, Gerard H. and van Soest, Daan P., Does Oil Price Uncertainty Affect Economic Activity? (February 2003). Available at SSRN: https://ssrn.com/abstract=379160 or http://dx.doi.org/10.2139/ssrn.379160

Gerard H. Kuper (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Daan P. Van Soest

Tilburg University - CentER & Department of Economics ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 2072 (Phone)

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