Abstract
Keywords
JEL classification
Introduction
Literature review
Methodology
Empirical results and discussion
Conclusion
Credit author statement
Funding sources
Credit author statement
Declaration of competing interest
Appendix A. Schematic diagram of the study methodology
References
Abstract
The aim of this paper is to investigate the asymmetric effects of the crude oil price on global economic policy uncertainty (EPU) using a nonlinear, autoregressive distributed lag approach. The results of the bounds test indicate that there is a long-run equilibrium relationship between economic uncertainty and crude oil price. Furthermore, we conclude that the long-run equilibrium relationship is a usual logical relationship and not a degraded relationship. The results of the asymmetric test also showed that the positive and negative shocks in oil prices do not have an asymmetric effect on the EPU in the long run and have an asymmetric effect in the short term. In addition, a negative shock may have a relatively greater effect in the long run compared to a positive shock while a positive shock may have a relatively greater impact in the short term compared to a negative shock. Our results are important to both investors interested in the oil market, as well as for policymakers.
Introduction
This research addresses an important question that has emerged in recent economic research; what is the asymmetric dynamic relationship between oil prices and the global economic policy uncertainty (EPU)? In particular, the research aims to study the asymmetric effects of the oil price on the EPU during the period (Q1:1997 to Q4:2020) by relying on a non-linear autoregressive distributed lag co-integration model that was developed by Shin et al. [1]. This modern approach allows the analysis of non-linear and symmetric integration relationships between variables. Since oil is used as a production factor in various industries and is a major resource for fuel and power generation in the transportation sector, oil prices are an important macroeconomic variable for the economy (Hamilton [2]; Dbouk and Jamali [3]). For example, when oil prices rise, the increase in production costs in various industries can reduce gross production, profits, and investment, as well as cause inflation, leading to lower levels of real wages, prompting monetary authorities to adopt contractionary monetary policies, thus leading to a secondary effect on the economy (Herrera et al.