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Oil Shocks and the Macroeconomy: The Role of Price Variability

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  • Kiseok Lee
  • Shawn Ni
  • Ronald A. Ratti

Abstract

In this paper we argue that an oil price change is likely to have greater impact on real GNP in an environment where oil prices have been stable, than in an environment where oil price movement has been frequent and erratic. An oil price shock variable reflecting both the unanticipated component and the time-varying conditional variance of oil price change (forecasts) is constructed and found to be highly significant in explaining economic growth across different sample periods, even when matched against various economic variables and other functions of oil price. We find that positive normalized shocks have a powerful effect on growth while negative normalized shocks do not.

Suggested Citation

  • Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, , vol. 16(4), pages 39-56, October.
    • Handle: RePEc:sae:enejou:v:16:y:1995:i:4:p:39-56
    DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-2
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    References listed on IDEAS

    as
    1. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    2. Bougerol, Philippe & Picard, Nico, 1992. "Stationarity of Garch processes and of some nonnegative time series," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 115-127.
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    More about this item

    Keywords

    Oil shocks; oil prices; VAR; GARCH; US; GNP;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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