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The Effects of Oil Price Uncertainty on Global Real Economic Activity

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  • SOOJIN JO

Abstract

This paper investigates the effect of oil price uncertainty on global real economic activity using a quarterly vector autoregressive model with stochastic volatility in mean. Stochastic volatility allows oil price uncertainty to vary separately from changes in the level of oil prices, and allows one to incorporate an extraneous indicator of oil price uncertainty such as realized volatility that greatly improves the precision of the estimated uncertainty series. The estimation results show that an oil price uncertainty shock has negative effects on world industrial production all else equal. For example, it is shown that a doubling of oil price volatility is associated with a cumulative decline as high as 0.3 percentage points in world industrial production.

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  • Soojin Jo, 2014. "The Effects of Oil Price Uncertainty on Global Real Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1113-1135, September.
    • Handle: RePEc:wly:jmoncb:v:46:y:2014:i:6:p:1113-1135
    DOI: 10.1111/jmcb.12135
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    References listed on IDEAS

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