Oil price shocks and economic growth: The volatility link
JM Maheu, Y Song, Q Yang
International Journal of Forecasting | Elsevier | Published : 2020
This paper shows that oil shocks impact economic growth primarily through the conditional variance of growth. Our comparison of models focuses on density forecasts. Over a range of dynamic models, oil shock measures and data, we find a robust link between oil shocks and the volatility of economic growth. We then develop a new measure of oil shocks and show that it is superior to existing measures; it indicates that the conditional variance of growth increases in response to an indicator of the local maximum oil price exceedance. The empirical results uncover a large pronounced asymmetric response of the growth volatility to oil price changes. The uncertainty about future growth is considerab..View full abstract
We are grateful for comments from the Editor Michael McCracken, two anonymous referees and Francesco Ravazzolo. Maheu thanks the SSHRC, Canada for financial support and Yang thanks ShanghaiTech University, China for financial support.