Does State Dependence Matter in Relation to Oil Price Shocks on Global Economic Conditions?

Author:

Dufrénot Gilles1,Ginn William23,Pourroy Marc4,Sullivan Adam5

Affiliation:

1. 128791 Aix-Marseille Univ , CNRS, AMSE , Marseille , France

2. Artificial Intelligence , 364534 Labcorp , Durham , USA

3. Coburg University of Applied Sciences , Coburg , Germany

4. 27077 CRIEF, University of Poitiers , Poitiers , France

5. Strategic Director, Artificial Intelligence , 364534 Labcorp , Burlington , USA

Abstract

Abstract A common thread in the literature shows that an oil price shock can have a major impact on global economic conditions. We examine the global dimensions of changes to the global oil price and world economic uncertainty using three model types: ordinary least square (OLS); general additive model (GAM); and non-linear vector autoregression (VAR) model with local projections (LP). Our study highlights a positive and statistically significant effect of oil prices on economic uncertainty during non-expansionary periods, yet the impact is negative on economic uncertainty during periods of economic growth. Using a VAR-LP we analyze the global dimensions of a world oil price shock on global economic conditions and investigate whether there is consistency in how an oil price shock influences economic growth, consumer prices and economic uncertainty based on the state of economic conditions. The empirical evidence shows that during an expansionary (a non-expansionary) period, the impact of an oil price shock lowers (elevates) economic uncertainty. The empirical evidence from the three model types taken together indicate a presence of state dependence on the influence of an oil price shock.

Publisher

Walter de Gruyter GmbH

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