Global economic policy uncertainty and oil price uncertainty: Which is more important for global economic activity?

Using monthly data spanning from January 1997 to November 2022, this paper investigates the influence of global economic policy uncertainty (GEPU) and oil price uncertainty (OPU) on global economic activity using a structural vector autoregressive (SVAR) model. The findings from the baseline model reveal the adverse effects of both GEPU and OPU shocks on the global economy. The counterfactual analysis highlights that the negative impact of OPU shocks primarily stems from direct effects, while approximately half of the adverse impact of GEPU shocks is indirectly transmitted through amplifying OPU. Further examination of the indirect effects of these shocks uncovers that lagged effects primarily drive the indirect impact of OPU, whereas the indirect impact of GEPU is mainly driven by common shocks. These findings suggest a more substantial and independent impact of OPU shocks compared to GEPU shocks. Additionally, employing a time-varying vector autoregressive with stochastic volatility (TVP-VAR-SV) model, this paper explores the same dataset. The results of time-varying impulse responses illustrate a diminishing effect of GEPU shocks over the sample period, whereas the impact of OPU shocks initially decreases before subsequently increasing.