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Time-Varying Impact of Geopolitical Risks on Oil Prices
journal contribution
posted on 2023-07-26, 14:57 authored by Juncal Cunado, Rangan Gupta, Marco C. K. Lau, Xin ShengThis paper analyses the dynamic impact of geopolitical risks (GPRs) on real oil returns for the period February 1974 to August 2017, using a time-varying parameter structural vector autoregressive (TVP-SVAR) model. Besides the two variables of concern, the model also includes growth in world oil production, global economic activity (to capture oil-demand), and world stock returns. We show that GPRs (based on a tally of newspaper articles covering geopolitical tensions), in general, has a significant negative impact on oil returns, primarily due to the decline in oil demand captured by the global economic activity. Our results, thus, highlight the risk of associating all GPRs with oil supply shocks driven by geopolitical tensions in the Middle East, and hence, ending up suggesting that higher GPRs drive up oil prices.
History
Refereed
- Yes
Volume
31Issue number
6Page range
692-706Publication title
Defence and Peace EconomicsISSN
1476-8267External DOI
Publisher
Taylor & FrancisLanguage
- other