Connectedness of economic policy uncertainty and oil price shocks in a time domain perspective
By Lu Yang. Energy Economics, 2019
145 citations recorded by the source corpus.
In this paper, we investigate causality and connectedness between economic policy uncertainty and oil price shocks across time scales. By incorporating the wavelet approach into the structural vector autoregression (VAR) framework proposed by Diebold and Yilmaz (2009, 2012, 2014), we find that crude oil prices behave like receivers of information from economic policy uncertainty, regardless of time scale. However, the causality relationship between economic policy uncertainty and oil price shocks intensifies as time scales increase. In addition, the connectedness relationship is robust to time scale changes, whereas the causal relationship intensifies as time scales increase. Notably, the weight of US economic policy uncertainty increases in the VAR system as time scales increase. In particular, we employ the West Texas Intermediate (WTI) crude oil price as an alternative measure to increase the robustness of our results and identify differences in the VAR system. Overall, the total connectedness of the WTI crude oil price is lower than that of the Brent crude oil price, regardless of time scale. Our results provide meaningful information for both investors and policymakers.
Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment
View Paper: https://www.semanticscholar.org/paper/46d470bb2333fc527210e5661d4d115014298277
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In Economics and Econometrics
Citations in the corpus
- Coronavirus and Oil Price Crash (2020, unknown): “A second set of studies underlines, on contrary, that US EPU dynamics triggers movements in international oil prices (Aloui et al., 2016; Yang, 2019).”
- The pandemic and economic policy uncertainty (2020, background): “Moreover, Balcilar, Bekiros, and Gupta (2017) indicate that EPU can help in predicting oil markets' returns, while Yang (2019) claims EPU conveys information to influence oil prices, which could directly affect oil prices.”