Oil prices and economic policy uncertainty: Evidence from a nonparametric panel data model |
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| Affiliation: | 1. Kent State University, Department of Economics, USA;2. Western Sydney University, School of Business, Australia;3. University of Tasmania, Tasmanian School of Business and Economics, Australia;1. Management Department, Politehnica University of Timisoara, P-ta. Victoriei no. 2, Timisoara, Romania;2. Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, United States;3. Independent Researcher;4. Rajagiri Business School, Rajagiri Valley Campus, Kochi, India;5. South Ural State University, Lenin prospect 76, Chelyabinsk, 454080, Russian Federation |
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| Abstract: | We examine the relationship between oil prices and economic policy uncertainty in G7 countries. To do so, we employ a nonparametric panel data technique that allows the trend and coefficient functions to evolve as unknown time-varying functional forms. We also estimate country-specific and common trend functions allowing them to evolve over time. Using monthly data from G7 countries over the period 1997:01–2018:06, we find that the effect of oil prices on economic policy uncertainty is time-varying. Our results show that the estimated time-varying coefficient function of the oil price was negative in years in which increases in oil prices were driven by a surge in global aggregate demand. Further, our nonparametric local linear estimates show that the country-specific and common trend functions are increasing over time. Our findings are robust to endogeneity and alternative specifications. |
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