(A)symmetric time-varying effects of uncertainty fluctuations on oil price volatility: A nonlinear ARDL investigation

Abstract

Limited number of literature studies looked at the link between uncertainty and oil price volatility. However, the asymmetric relationship regarding this nexus remains relatively unexplored area in the literature. In this paper, we adopt asymmetric analysis for the uncertainty-oil price nexus, via employing the nonlinear autoregressive distributed lag model (NARDL) of Shin et al. (2014). We utilize three uncertainty indices; economic policy uncertainty, global geopolitical risk, and world uncertainty. The paper finds evidence of long-run relationship (cointegration), using monthly data from 1990 to 2020. The NARDL findings show long-run asymmetric effect of economic policy uncertainty and global geopolitical risk on WTI oil prices, however, asymmetric short-run effect was documented for global geopolitical risk only. The empirical inferences highlight that economic policy uncertainty and global geopolitical risk are more suitable and proper indices for analyzing the impact of uncertainty on oil price volatility.