Abstract
Purpose Might the impact of the global economic policy uncertainty (GEPU) and the long-term bond yields on oil prices be asymmetric? This paper aims to consider the effects of the GEPU and the US long-term government bond yields on oil prices using quantile-based analysis and nonlinear vector autoregression (VAR) model. The author hypothesized whether the negative and positive changes in the GEPU and the long-term bond yields of the USA have different effects on oil prices. Design/methodology/approach To address this question, the author uses quantile cointegration model and the impulse response functions (IRFs) of the censored variable approach of Kilian and Vigfusson (2011). Findings The quantile cointegration test showed the existence of non-linear cointegration relationship, whereas Granger-causality analysis revealed that positive/negative variations in GEPU will have opposite effects on oil prices. This result was supported by the quantile regression model’s coefficients and nonlinear VAR model’s IRFs; more specifically, it was stressed that increasing/decreasing GEPU will deaccelerate/accelerate global economic activity and thus lead to a fall/rise in oil prices. On the other hand, the empirical models indicated that the impact of US 10-year government bond yields on oil prices is asymmetrical, while it was found that deterioration in the borrowing conditions in the USA may have an impact on oil prices by slowing down the global economic activity. Originality/value As a robustness check of the quantile-based analysis results, the slope-based Mork test is used.
Highlights
After the recent global financial crisis (GFC), the relationship between monetary policy indicators and the oil market increased, and it has been acknowledged that this phenomenon is owing to the expansionary policies implemented by major central banks to revive economies
The existence of long-term nonlinear relationships among the previously mentioned variables was determined by a nonlinear cointegration relationship, while the coefficients of the quantile cointegration model showed that the long-term relationship between the variables could be in the opposite direction
Long-term relationships between variables were examined by Granger-causality analysis, and it was found that positive and negative variations in global economic policy uncertainty (GEPU) can have significant effects on oil prices
Summary
After the recent global financial crisis (GFC), the relationship between monetary policy indicators and the oil market increased, and it has been acknowledged that this phenomenon is owing to the expansionary policies implemented by major central banks to revive economies. Ratti and Vespignani (2016) stressed that, when considering the world price of oil, it is necessary to take into account the influence of macroeconomic variables, including those that embody the monetary conditions in the major developing and developed countries In this respect, the 10-year government bond yields of the USA have been regarded as an indicator that reflects the expectations of economic agents for future economic conditions. Considering their strong relationship with other financial indicators, it can be suggested that the relevant bond yields are an indicator that has a high representative capacity to evaluate the relationship between the bond market and the oil market (Balcilar et al, 2020; Demirer et al, 2020; Gormus et al, 2018; Kang et al, 2014; Lee et al, 2017; Nazlioglu et al, 2020; Shahzad et al, 2017; Tule et al, 2017)
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