Oil prices and economic policy uncertainty: evidence from a nonparametric panel data model

Abebe Hailemariam, Russell Smyth, Xibin Zhang

Research output: Contribution to journalArticleResearchpeer-review

25 Citations (Scopus)

Abstract

We examine the relationship between oil prices and economic policy uncertainty in G7 countries. To do so, we employ a nonparametric panel data technique that allows the trend and coefficient functions to evolve as unknown time-varying functional forms. We also estimate country-specific and common trend functions allowing them to evolve over time. Using monthly data from G7 countries over the period 1997:01–2018:06, we find that the effect of oil prices on economic policy uncertainty is time-varying. Our results show that the estimated time-varying coefficient function of the oil price was negative in years in which increases in oil prices were driven by a surge in global aggregate demand. Further, our nonparametric local linear estimates show that the country-specific and common trend functions are increasing over time. Our findings are robust to endogeneity and alternative specifications.

Original languageEnglish
Pages (from-to)40-51
Number of pages12
JournalEnergy Economics
Volume83
DOIs
Publication statusPublished - Sep 2019

Keywords

  • Economic policy uncertainty
  • Nonparametric panel data
  • Oil prices
  • Time-varying coefficient function

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