[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eco/journ2/2016-02-4.html
   My bibliography  Save this article

The Asymmetric Effects of Oil Price Shocks on the Canadian Economy

Author

Listed:
  • Luiggi Donayre

    (Department of Economics, University of Minnesota - Duluth, 1318 Kirby Drive, Duluth, Minnesota, United States)

  • Neil A. Wilmot

    (Department of Economics, University of Minnesota - Duluth, 1318 Kirby Drive, Duluth, Minnesota, United States)

Abstract
A threshold vector autoregression (TVAR) is estimated to study the effects of oil price shocks on Canadian output and price level. While much of the literature has investigated potential asymmetric effects of positive and negative oil price shocks within a linear vector autoregression (VAR), we do so within a nonlinear VAR. Further, we extend the analysis to consider the correlation between asymmetries associated with the business cycle phase and size/sign asymmetries. Positive oil price shocks are found to have a stronger effect on output than negative oil price shocks. This asymmetry is significant in recessions, but lessened during expansions. The results also suggest that the reduction in inflation due to a negative oil price shock is larger than the increase in inflation following a positive oil price shock, especially during periods of low output growth. Yet, neither inflation nor output growth seems to vary disproportionately with the size of the oil price shock. In general, the results are robust to the ordering of the variables in the VAR process and to the time window over which the net oil price change is computed

Suggested Citation

  • Luiggi Donayre & Neil A. Wilmot, 2016. "The Asymmetric Effects of Oil Price Shocks on the Canadian Economy," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 167-182.
    • Handle: RePEc:eco:journ2:2016-02-4
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijeep/article/download/1811/1292
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijeep/article/view/1811/1292
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yusuf Soner Başkaya & Timur Hülagü & Hande Küçük, 2013. "Oil Price Uncertainty in a Small Open Economy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(1), pages 168-198, April.
    2. Hamilton, James D., 1996. "This is what happened to the oil price-macroeconomy relationship," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 215-220, October.
    3. An, Lian & Jin, Xiaoze & Ren, Xiaomei, 2014. "Are the macroeconomic effects of oil price shock symmetric?: A Factor-Augmented Vector Autoregressive approach," Energy Economics, Elsevier, vol. 45(C), pages 217-228.
    4. Peersman, Gert & Smets, Frank, 2001. "Are the effects of monetary policy in the euro area greater in recessions than in booms?," Working Paper Series 52, European Central Bank.
    5. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2011. "Oil Price Shocks And Industrial Production: Is The Relationship Linear?," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 472-497, November.
    6. Lutz Kilian & Clara Vega, 2011. "Do Energy Prices Respond to U.S. Macroeconomic News? A Test of the Hypothesis of Predetermined Energy Prices," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 660-671, May.
    7. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2015. "Asymmetries in the response of economic activity to oil price increases and decreases?," Journal of International Money and Finance, Elsevier, vol. 50(C), pages 108-133.
    8. Hamilton, James D., 2011. "Nonlinearities And The Macroeconomic Effects Of Oil Prices," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 364-378, November.
    9. Davis, Steven J. & Haltiwanger, John, 2001. "Sectoral job creation and destruction responses to oil price changes," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 465-512, December.
    10. Kilian, Lutz & Edelstein, Paul, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses About the Transmission of Ener," CEPR Discussion Papers 6507, C.E.P.R. Discussion Papers.
    11. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
    12. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    13. Engemann, Kristie M. & Kliesen, Kevin L. & Owyang, Michael T., 2011. "Do Oil Shocks Drive Business Cycles? Some U.S. And International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 498-517, November.
    14. Mahadeva,Lavan & Sinclair,Peter (ed.), 2002. "Monetary Transmission in Diverse Economies," Cambridge Books, Cambridge University Press, number 9780521813464, September.
    15. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April.
    16. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 85-106.
    17. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
    18. Terasvirta, Timo & Yang, Yukai, 2014. "Specification, estimation and evaluation of vector smooth transition autoregressive models with applications," LIDAM Discussion Papers CORE 2014062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    19. Edelstein Paul & Kilian Lutz, 2007. "The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses about the Transmission of Energy Price Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, November.
    20. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    21. Marc Gronwald, 2012. "Oil and the U.S. Macroeconomy: A Reinvestigation Using Rolling Impulse Responses," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    22. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    23. Weise, Charles L, 1999. "The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 85-108, February.
    24. Timo Teräsvirta & Yukai Yang, 2014. "Linearity and Misspecification Tests for Vector Smooth Transition Regression Models," CREATES Research Papers 2014-04, Department of Economics and Business Economics, Aarhus University.
    25. Lo, Ming Chien & Piger, Jeremy, 2005. "Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coefficients Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 865-886, October.
    26. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    27. Hansen Bruce E., 1997. "Inference in TAR Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(1), pages 1-16, April.
    28. Edelstein, Paul & Kilian, Lutz, 2009. "How sensitive are consumer expenditures to retail energy prices?," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 766-779, September.
    29. Bresnahan, Timothy F & Ramey, Valerie A, 1993. "Segment Shifts and Capacity Utilization in the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 83(2), pages 213-218, May.
    30. Herrera, Ana María & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The “Great Moderation”," Macroeconomic Dynamics, Cambridge University Press, vol. 13(1), pages 107-137, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Kai-Hua & Liu, Lu & Li, Xin & Oana-Ramona, Lobonţ, 2022. "Do oil price shocks drive unemployment? Evidence from Russia and Canada," Energy, Elsevier, vol. 253(C).
    2. Haider Mahmood & Ahmad M.A. Zamil, 2019. "Oil Price and Slumps Effects on Personal Consumption in Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 9(4), pages 12-15.
    3. Siok Kun Sek, 2023. "A new look at asymmetric effect of oil price changes on inflation: Evidence from Malaysia," Energy & Environment, , vol. 34(5), pages 1524-1547, August.
    4. Maryam Ahmadi & Matteo Manera, 2021. "Oil Price Shocks and Economic Growth in Oil-Exporting Countries," Working Papers 2021.13, Fondazione Eni Enrico Mattei.
    5. Camilo Alberto Cárdenas-Hurtado & Aaron Levi Garavito-Acosta & Jorge Hernán Toro-Córdoba, 2018. "Asymmetric Effects of Terms of Trade Shocks on Tradable and Non-tradable Investment Rates: The Colombian Case," Borradores de Economia 1043, Banco de la Republica de Colombia.
    6. Antonio J., Garzón & Luis A., Hierro, 2022. "Inflation, oil prices and exchange rates. The Euro’s dampening effect," Journal of Policy Modeling, Elsevier, vol. 44(1), pages 130-146.
    7. Manuel Cantavella, 2020. "Fluctuations of Oil Prices and Gross Domestic Product in Spain," International Journal of Energy Economics and Policy, Econjournals, vol. 10(2), pages 57-63.
    8. Karunanithi Kriskkumar & Niaz Ahmad Mohd Naseem & Wan Ngah Wan Azman-Saini, 2022. "Investigating the Asymmetric Effect of Oil Price on the Economic Growth in Malaysia: Applying Augmented ARDL and Nonlinear ARDL Techniques," SAGE Open, , vol. 12(1), pages 21582440221, March.
    9. Ligia Topan & Miguel Jerez & Sonia Sotoca, 2020. "The impact of oil prices on products groups inflation: is the effect asymmetric?," Documentos de Trabajo del ICAE 2020-02, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    10. Bigerna, Simona, 2023. "Energy price shocks, exchange rates and inflation nexus," Energy Economics, Elsevier, vol. 128(C).
    11. Knotek, Edward S. & Zaman, Saeed, 2021. "Asymmetric responses of consumer spending to energy prices: A threshold VAR approach," Energy Economics, Elsevier, vol. 95(C).
    12. Ganepola, Chanaka N. & Shubita, Moade & Lee, Lillian, 2023. "The electric shock: Causes and consequences of electricity prices in the United Kingdom," Energy Economics, Elsevier, vol. 126(C).
    13. Sek, Siok Kun, 2019. "Unveiling the factors of oil versus non-oil sources in affecting the global commodity prices: A combination of threshold and asymmetric modeling approach," Energy, Elsevier, vol. 176(C), pages 272-280.
    14. Evgenidis, Anastasios, 2018. "Do all oil price shocks have the same impact? Evidence from the euro area," Finance Research Letters, Elsevier, vol. 26(C), pages 150-155.
    15. Karunanithi Kriskkumar & Niaz Ahmad Mohd Naseem, 2019. "Analysis of Oil Price Effect on Economic Growth of ASEAN Net Oil Exporters," Energies, MDPI, vol. 12(17), pages 1-19, August.
    16. Garzon, Antonio J. & Hierro, Luis A., 2021. "Asymmetries in the transmission of oil price shocks to inflation in the eurozone," Economic Modelling, Elsevier, vol. 105(C).
    17. Rasheed O. Alao & Abdulkareem Alhassan & Saheed Alao & Ifedolapo O. Olanipekun & Godwin O. Olasehinde-Williams & Ojonugwa Usman, 2023. "Symmetric and asymmetric GARCH estimations of the impact of oil price uncertainty on output growth: evidence from the G7," Letters in Spatial and Resource Sciences, Springer, vol. 16(1), pages 1-14, December.
    18. OSMANI, Md Ataul Gani & PANAIT, Mirela & APOSTU, Simona Andreea & JANJUA, Laeeq Razzak, 2022. "Are There Any Asymmetric Responses Of Oil Price Shocks To Gdp Growth? A Review Of Literature," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 10(1), pages 276-283, October.
    19. Zulfigarov, Farid & Neuenkirch, Matthias, 2020. "The impact of oil price changes on selected macroeconomic indicators in Azerbaijan," Economic Systems, Elsevier, vol. 44(4).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Herrera, Ana María & Lagalo, Latika Gupta & Wada, Tatsuma, 2015. "Asymmetries in the response of economic activity to oil price increases and decreases?," Journal of International Money and Finance, Elsevier, vol. 50(C), pages 108-133.
    2. Knotek, Edward S. & Zaman, Saeed, 2021. "Asymmetric responses of consumer spending to energy prices: A threshold VAR approach," Energy Economics, Elsevier, vol. 95(C).
    3. Herrera, Ana María & Karaki, Mohamad B. & Rangaraju, Sandeep Kumar, 2019. "Oil price shocks and U.S. economic activity," Energy Policy, Elsevier, vol. 129(C), pages 89-99.
    4. Claudio Morana, 2013. "The Oil Price-Macroeconomy Relationship Since the Mid-1980s: A Global Perspective," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    5. Kilian, Lutz & Vigfusson, Robert J., 2011. "Nonlinearities In The Oil Price–Output Relationship," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 337-363, November.
    6. Joëts, Marc & Mignon, Valérie & Razafindrabe, Tovonony, 2017. "Does the volatility of commodity prices reflect macroeconomic uncertainty?," Energy Economics, Elsevier, vol. 68(C), pages 313-326.
    7. Evgenidis, Anastasios, 2018. "Do all oil price shocks have the same impact? Evidence from the euro area," Finance Research Letters, Elsevier, vol. 26(C), pages 150-155.
    8. Aktham I. Maghyereh & Basil Awartani & Osama D. Sweidan, 2019. "Oil price uncertainty and real output growth: new evidence from selected oil-importing countries in the Middle East," Empirical Economics, Springer, vol. 56(5), pages 1601-1621, May.
    9. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    10. Jo, Soojin & Karnizova, Lilia & Reza, Abeer, 2019. "Industry effects of oil price shocks: A re-examination," Energy Economics, Elsevier, vol. 82(C), pages 179-190.
    11. Herrera, Ana María & Karaki, Mohamad B., 2015. "The effects of oil price shocks on job reallocation," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 95-113.
    12. Borozan, Djula & Lolic Cipcic, Marina, 2022. "Asymmetric and nonlinear oil price pass-through to economic growth in Croatia: Do oil-related policy shocks matter?," Resources Policy, Elsevier, vol. 76(C).
    13. Mohamad B. Karaki, 2018. "Asymmetries In The Responses Of Regional Job Flows To Oil Price Shocks," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1827-1845, July.
    14. Bunce, Alan & Carrillo-Maldonado, Paul, 2023. "Asymmetric effect of the oil price in the ecuadorian economy," Energy Economics, Elsevier, vol. 124(C).
    15. Nguyen, Bao H. & Okimoto, Tatsuyoshi & Tran, Trung Duc, 2022. "Uncertainty-dependent and sign-dependent effects of oil market shocks," Journal of Commodity Markets, Elsevier, vol. 26(C).
    16. Rajesh H. Acharya & Anver C. Sadath, 2018. "Revisiting the relationship between oil price and macro economy: Evidence from India," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2018(1), pages 173-190.
    17. Deheri, Abdhut & Ramachandran, M., 2023. "Does Indian economy asymmetrically respond to oil price shocks?," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    18. Ozge Kandemir Kocaaslan, 2021. "Are the responses of output and investment to oil price shocks asymmetric?: The case of an oil-importing small open economy," Empirical Economics, Springer, vol. 61(5), pages 2501-2516, November.
    19. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.
    20. Pal, Debdatta & Mitra, Subrata Kumar, 2019. "Asymmetric oil price transmission to the purchasing power of the U.S. dollar: A multiple threshold NARDL modelling approach," Resources Policy, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Net Oil Price Increase; Asymmetry; Vector Threshold Autoregressions; Nonlinear Impulse Response Functions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ2:2016-02-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.