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Oil Price Shock: A Nonlinear Approach

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  • Rebeca Jiménez-Rodríguez

    (Universidad de Alicante)

Abstract

Nowadays, the importance of crude oil goes beyond simple economic aspects and affects social life in general. As such, it is imperative that we should know what the relationship between GDP growth and oil price changes is like. This paper presents evidence of a nonlinear relationship between the two things. We also argue that this non-linearity is not merely due to the use of data from the mid-1980s onwards, as most authors, so far, seem to believe. In fact, we find the existence of non-linearity with the use of data earlier than 1984, and even before 1977. Furthermore, we question that the nonlinear transformations of oil prices proposed in the Literature are able to reflect such non-linearity. We therefore use a non-linear function that relates GDP growth to oil prices, and estimate this function by means of kernel methods, avoiding any assumptions about its form. This kernel estimation improves on the linear estimation, and also improves on both Hamilton?s (2001b) estimation and those of the nonlinear transformations. Hoy día la importancia del petróleo sobrepasa los aspectos meramenteeconómicos, afectando de manera generalizada a nuestra vida social. Por ello, es muyimportante saber cuál es la relación existente entre el crecimiento del PIB y los cambiosen el precio del petróleo. Este artículo presenta evidencia de la existencia de unarelación no-lineal entre ambos. Esta no-linealidad se debe no solamente al uso de datosdesde mitad de los años ochenta, como la mayoría de los autores parecen creer. Dehecho, se puede encontrar la existencia de no-linealidad con el uso de datos anteriores a1984, e incluso anteriores a 1977. Este artículo adicionalmente cuestiona que lastransformaciones no-lineales propuestas en la literatura sean capaces de capturar dichano-linealidad. Por todo ello, se utiliza una función no-lineal que relaciona el crecimientodel PIB con el precio del petróleo, estimándola a través de métodos ¿kernel¿, evitandoasí cualquier supuesto sobre su forma. Esta estimación ¿kernel¿ mejora la estimaciónlineal, así como aquellas derivadas de las transformaciones no-lineales y aquellapropuesta por Hamilton (2001b).

Suggested Citation

  • Rebeca Jiménez-Rodríguez, 2002. "Oil Price Shock: A Nonlinear Approach," Working Papers. Serie EC 2002-32, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasec:2002-32
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    References listed on IDEAS

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