Oil price uncertainty in Canada |
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Authors: | John Elder Apostolos Serletis |
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Affiliation: | aDepartment of Finance and Real Estate, 1272 Campus Delivery, Colorado State University, Fort Collins, CO 80523, United States;bDepartment of Economics, University of Calgary, Calgary, Alberta, Canada T2N 1N4 |
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Abstract: | Bernanke [Bernanke, Ben S. Irreversibility, uncertainty, and cyclical investment. Quarterly Journal of Economics 98 (1983), 85–106.] shows how uncertainty about energy prices may induce optimizing firms to postpone investment decisions, thereby leading to a decline in aggregate output. Elder and Serletis (Elder, John and Serletis, Apostolos. Oil price uncertainty. http://ssrn.com/abstract=908675 (2009).] find empirical evidence that uncertainty about oil prices has tended to depress investment in the United States. In this paper we assess the robustness of these results by investigating the effects of oil price uncertainty in Canada. Our results are remarkably similar to existing results for the United States, providing additional evidence that uncertainty about oil prices may provide another explanation for why the sharp oil price declines of 1985 failed to produce rapid output growth. Impulse-response analysis suggests that uncertainty about oil prices may tend to reinforce the negative response of output to positive oil shocks. |
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Keywords: | Oil Volatility Vector autoregression Multivariate GARCH-in-mean VAR |
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