Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty

Nikolaos Antonakakis, Ioannis Chatziantoniou and George Filis

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: This study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil-exporting and net oil-importing countries over the period 1997:01-2013:06. To achieve that, we extend the Diebold and Yilmaz (2009, 2012) dynamic spillover index using structural decomposition. The results reveal that economic policy uncertainty (oil price shocks) responds negatively to aggregate demand oil price shocks (economic policy uncertainty shocks). Furthermore, during the Great Recession of 2007-2009, total spillovers increase considerably, reaching unprecedented heights. Moreover, in net terms, economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009, while in the post-2009 period there is a significant role for supply-side and oil specific demand shocks, as net transmitters of spillover effects. These results are important for policy makers, as well as, investors interested in the oil market.

Keywords: Policy uncertainty; Oil price shock; Spillover index; Structural Vector Autoregression; Variance Decomposition; Impulse Response Function (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 E60 Q41 Q43 Q48 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-ene and nep-mac
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Citations: View citations in EconPapers (165)

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Working Paper: Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty (2014)
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