{"title":"Economic policy uncertainty, jump dynamics, and oil price volatility","authors":"Feng Liu , Shuai Shao , Xin Li , Na Pan , Yu Qi","doi":"10.1016/j.eneco.2023.106635","DOIUrl":null,"url":null,"abstract":"<div><p>Although the underlying forces behind oil price volatility have attracted the attention of scholars, a clear consensus is yet to be achieved on how to quantify the contributions of economic policy uncertainty<span> (EPU) and jump dynamics simultaneously. This paper develops a joint EGARCH-MIDAS-ARJI model to address this issue and break the obstacle of mixed data sampling. To avoid the effect of political and business cycles, all EPU indices are detrended using the Hodrick Prescott (HP) filter. The results show that oil price volatility is adversely associated with EPU. As large EPU values imply that policymakers are trying to make some beneficial efforts, this finding challenges the neoclassical opinion that policy intervention is a source of market fluctuation. We also find that the US policy intervention can reduce only less than 6% of oil price volatility, while the effects of China's economic policy are even weaker. More importantly, jump dynamics still account for a remarkable percentage in oil price volatility, especially during lower volatility periods. Possible explanations are that policy makers only respond to large persistent oil price volatility, while the targets and actions of oil-importing countries and oil-exporting countries are also converse in most cases.</span></p></div>","PeriodicalId":11665,"journal":{"name":"Energy Economics","volume":null,"pages":null},"PeriodicalIF":13.6000,"publicationDate":"2023-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Energy Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0140988323001330","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 2
Abstract
Although the underlying forces behind oil price volatility have attracted the attention of scholars, a clear consensus is yet to be achieved on how to quantify the contributions of economic policy uncertainty (EPU) and jump dynamics simultaneously. This paper develops a joint EGARCH-MIDAS-ARJI model to address this issue and break the obstacle of mixed data sampling. To avoid the effect of political and business cycles, all EPU indices are detrended using the Hodrick Prescott (HP) filter. The results show that oil price volatility is adversely associated with EPU. As large EPU values imply that policymakers are trying to make some beneficial efforts, this finding challenges the neoclassical opinion that policy intervention is a source of market fluctuation. We also find that the US policy intervention can reduce only less than 6% of oil price volatility, while the effects of China's economic policy are even weaker. More importantly, jump dynamics still account for a remarkable percentage in oil price volatility, especially during lower volatility periods. Possible explanations are that policy makers only respond to large persistent oil price volatility, while the targets and actions of oil-importing countries and oil-exporting countries are also converse in most cases.
期刊介绍:
Energy Economics is a field journal that focuses on energy economics and energy finance. It covers various themes including the exploitation, conversion, and use of energy, markets for energy commodities and derivatives, regulation and taxation, forecasting, environment and climate, international trade, development, and monetary policy. The journal welcomes contributions that utilize diverse methods such as experiments, surveys, econometrics, decomposition, simulation models, equilibrium models, optimization models, and analytical models. It publishes a combination of papers employing different methods to explore a wide range of topics. The journal's replication policy encourages the submission of replication studies, wherein researchers reproduce and extend the key results of original studies while explaining any differences. Energy Economics is indexed and abstracted in several databases including Environmental Abstracts, Fuel and Energy Abstracts, Social Sciences Citation Index, GEOBASE, Social & Behavioral Sciences, Journal of Economic Literature, INSPEC, and more.