Oil price volatility and U.S. macroeconomic activity

By Hui Guo, Kevin L. Kliesen. 2005

207 citations recorded by the source corpus.

Oil shocks exert influence on macroeconomic activity through various channels, many of which imply a symmetric effect. However, the effect can also be asymmetric. In particular, sharp oil price changes-either increases or decreases-may reduce aggregate output temporarily because they delay business investment by raising uncertainty or induce costly sectoral resource reallocation. Consistent with these asymmetric-effect hypotheses, the authors find that a volatility measure constructed using daily crude oil futures prices has a negative and significant effect on future gross domestic product (GDP) growth over the period 1984-2004. Moreover, the effect becomes more significant after oil price changes are also included in the regression to control for the symmetric effect. The evidence here provides economic rationales for Hamilton's (2003) nonlinear oil shock measure: It captures overall effects, both symmetric and asymmetric, of oil price shocks on output.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/bb241967ce49cf8abda50a3d4e5403dfeade9ffa

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In Economics and Econometrics

Citations in the corpus

Volatility transmission between gold and oil futures under structural breaks (2013, background): “Guo and Kliesen (2005) show that a volatility measure constructed using daily crude oil futures prices has a significant negative effect on future gross domestic product (GDP) growth.”
Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects (2008, background): “Some researchers [Ferderer, 1996; Guo and Kliesen, 2005] argue that increased oil price volatility also leads to increased uncertainty and, therefore, include volatility measures in their models.”