Oil Price Shocks and Economic Growth: The Volatility Link


ShanghaiTech SEM Working Paper No. 2018-004


John M. Maheu

McMaster University and RCEA - DeGroote School of Business

Yong Song

University of Melbourne and RCEA

Qiao Yang

ShanghaiTech University - School of Entrepreneurship and Management



This paper shows that oil shocks primarily impact economic growth through the conditional variance of growth. We move beyond the literature that focuses on conditional mean point forecasts and compare models based on density forecasts. Over a range of dynamic models, oil shock measures and data we  nd a robust link between oil shocks and the volatility of economic growth...

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Keywords: Bayes factors, predictive likelihoods, nonlinear dynamics, density forecast

JEL Classification: C53, C32, C11, Q43


Date Written: December 2017


Available at SSRN: http://ssrn.com/abstract=3159715