Are the responses of output and investment to oil price shocks asymmetric?: The case of an oil-importing small open econ
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Are the responses of output and investment to oil price shocks asymmetric?: The case of an oil-importing small open economy Ozge Kandemir Kocaaslan1,2 Received: 31 March 2020 / Accepted: 5 November 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract In this paper, we investigate whether there are asymmetric effects of oil price changes on GDP, industrial production and investment in Turkey for the period between 1998:q1 and 2019:q2 applying the methodology advanced by Kilian and Vigfusson (Quant Econ 2(3):419–453, 2011a). Based on the results of the slope-based tests, we cannot find significant evidence against the null of symmetry in the effects of oil price shocks on real GDP growth, industrial production growth and investment. Next, we concentrate on the impulse response-based tests which allow us to examine the issue of asymmetry of the impulse response functions directly. Overall, both the results of the impulse response-based symmetry tests and the impulse response analysis present significant evidence confirming the asymmetry in the responses to real oil price shocks. That is, our findings show that the responses of all macroeconomic aggregates to positive oil price shocks are considerably greater than those of to negative oil price shocks, especially at short horizons. Moreover, the asymmetry seems to be more apparent in the responses of investment and industrial production growth. Our study also emphasizes the importance of using an appropriate model to analyze the underlying relations. Keywords Asymmetry · Oil price · Vector autoregression JEL Classification C32 · E37 · Q43
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Ozge Kandemir Kocaaslan [email protected]
1
Department of Economics, Faculty of Economics and Administrative Sciences, Hacettepe University, Beytepe Campus, 06800 Cankaya, Ankara, Turkey
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Department of Economics, Hacettepe University, Ankara, Turkey
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O. Kandemir Kocaaslan
1 Introduction Oil shocks affect real economic activity through both demand and supply channels. Hamilton (1983) argues that in the US economy the drastic rises in oil prices led 7 out of the 8 recessions in the postwar period. Following the 1970s oil crisis and the subsequent stagflation, several researchers were highly interested in investigating the oil price–macroeconomy nexus empirically. Although the negative nexus between economic activity and higher oil prices is clear, there is still an ongoing debate about the asymmetric response of output to negative and positive oil price shocks.1 There is a large empirical literature on the oil price–output growth relation which argues that oil price changes affect economic activity asymmetrically. Specifically, positive oil price shocks are widely considered to impede output growth by more than negative price shocks tend to stimulate it. To explain this asymmetric relation, some researchers use the monetary policy channel as contractionary monetary policy changes following high oil price periods lead to a fall in economic activity (see Bernanke et al. 1997). The adjust
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