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Oil Price Uncertainty

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  • JOHN ELDER
  • APOSTOLOS SERLETIS

Abstract

The theories of investment under uncertainty and real options predict that uncertainty about, for example, oil prices will tend to depress current investment. We reinvestigate the relationship between the price of oil and investment, focusing on the role of uncertainty about oil prices. We find that volatility in oil prices has had a negative and statistically significant effect on several measures of investment, durables consumption, and aggregate output. We also find that accounting for the effects of oil price volatility tends to exacerbate the negative dynamic response of economic activity to a negative oil price shock, while dampening the response to a positive oil price shock.

Suggested Citation

  • John Elder & Apostolos Serletis, 2010. "Oil Price Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1137-1159, September.
    • Handle: RePEc:wly:jmoncb:v:42:y:2010:i:6:p:1137-1159
    DOI: 10.1111/j.1538-4616.2010.00323.x
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    JEL classification:

    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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