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Federal Reserve Bank of Dallas
Globalization Institute Working Papers
Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production
Wensheng Kang
Ronald A. Ratti
Joaquin L. Vespignani
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 variatio in economic policy uncertainty as structural shocks on the demand side of the oil market.


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Wensheng Kang & Ronald A. Ratti & Joaquin L. Vespignani, Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production, Federal Reserve Bank of Dallas, Globalization Institute Working Papers 295, 01 Jan 2017.
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DOI: 10.24149/gwp295
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