Oil Price Uncertainty |
| |
| Authors: | JOHN ELDER APOSTOLOS SERLETIS |
| |
| Institution: | 1. John Elder is an Associate Professor of Finance, Department of Finance and Real Estate, Colorado State University, Fort Collins, CO (E‐mail: john.elder@colostate.edu).;2. Apostolos Serletis is a Professor of Economics and Finance, Department of Economics, University of Calgary, Canada (E‐mail: serletis@ucalgary.ca). |
| |
| Abstract: | The theories of investment under uncertainty and real options predict that uncertainty about, for example, oil prices will tend to depress current investment. We reinvestigate the relationship between the price of oil and investment, focusing on the role of uncertainty about oil prices. We find that volatility in oil prices has had a negative and statistically significant effect on several measures of investment, durables consumption, and aggregate output. We also find that accounting for the effects of oil price volatility tends to exacerbate the negative dynamic response of economic activity to a negative oil price shock, while dampening the response to a positive oil price shock. |
| |
| Keywords: | C32 E32 G31 real options oil volatility vector autoregression multivariate GARCH‐in‐mean VAR |
|
|
