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The Effects of Oil Shocks on Macroeconomic Uncertainty: Evidence from a Large Panel Dataset of US States

Modeling and Optimization in Science and Technologies, ISSN: 2196-7334, Vol: 18, Page: 159-175
2021
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Book Chapter Description

This study investigates the effects of oil price shocks on macroeconomic uncertainty using a large panel dataset of 50 US states. We examine both linear and nonlinear impulse response functions of uncertainty to oil shocks by using the local projection method. We disaggregate oil shocks according to their origin into the oil supply (production), economic activity (aggregate demand), oil inventory (speculative demand), and oil market-specific (consumption demand) shocks. We also consider the spillover effects across the measures of uncertainty in the US when estimating the impulse responses of uncertainty to various types of oil shocks. Our results show that uncertainty is affected by both supply and demand-side oil shocks and the effects of oil shocks on uncertainty are contingent on the states of oil dependence.

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