Are the responses of output and investment to oil price shocks asymmetric?: The case of an oil-importing small open economy

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.