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Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production

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Kang, W and Ratti, R and Vespignani, JL (2017) Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production. Discussion Paper. University of Tasmania. (Unpublished)

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Abstract

Important interaction has been established for US economic policy uncertainty with a number of
economic and financial variables including oil prices. This paper examines the dynamic effects of
US and non-US oil production shocks on economic policy uncertainty using a structural VAR
model. Such an examination is motivated by the substantial increases in US oil production in recent
years with implications for US political and economic security. Positive innovations in US oil
production are associated with decreases in US economic policy uncertainty. The economic
forecast interquartile ranges about the US CPI and about federal/state/local government
expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil
supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall
variation of the CPI forecaster disagreement. Dis-aggregation of oil production shocks into US
and non-US oil production yield novel results. Oil supply shocks identified by US and non-US
origins explain as much of the variation in economic policy uncertainty as structural shocks on the
demand side of the oil market.

Item Type: Report (Discussion Paper)
Keywords: US oil production, economic policy uncertainty, CPI forecast uncertainty, structural VAR
Publisher: University of Tasmania
Identification Number - DOI: 978-1-86295-895-1
Additional Information:

Discussion Paper Series N 2017-02

Date Deposited: 27 Mar 2017 03:13
Last Modified: 27 Mar 2017 03:17
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