Oil prices and economic policy uncertainty: Evidence from global,oil importers,and exporters’ perspective

Containing various information, economic policy uncertainty reflects significant rises and declines when facing shocks like financial crisis, oil-price change, and other specific economic or policy events. This paper empirically studies the interaction between oil prices and the newly formulated economic policy uncertainty indices using a time-varying parameter vector autoregression framework. Generally, the results of this study suggest that economic policy uncertainty reveals fluctuating responses to oil price shocks, while the oil price has a negative response to the uncertainty. The findings also reveal that the economic policy uncertainty indices for oil-importers and oil-exporters respond to oil price shocks differently. The oil price shock has a larger fluctuation to the economic policy uncertainty of oil-exporters than that of importers. Moreover, for the oil-exporters, the negative response to the oil price shock is greater than that of the oil-importing countries. This paper also discusses the impact of asymmetric shocks of oil price on economic policy uncertainty. In particular, after two financial crises, positive shocks decrease the uncertainty and vice versa. These findings are robustly verified.