Time-Varying Impact of Geopolitical Risks on Oil Prices

Cunado, Juncal and Gupta, Rangan and Lau, Marco C. K. and Sheng, Xin (2019) Time-Varying Impact of Geopolitical Risks on Oil Prices. Defence and Peace Economics. ISSN 1476-8267

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Official URL: https://doi.org/10.1080/10242694.2018.1563854

Abstract

This 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.

Item Type: Journal Article
Keywords: Oil markets, geopolitical risks, time-varying parameter structural vector autoregressive (TVP-SVAR) model, oil supply, demand shocks
Faculty: Faculty of Business & Law
Depositing User: Lisa Blanshard
Date Deposited: 06 Apr 2020 16:01
Last Modified: 06 Apr 2020 16:01
URI: http://arro.anglia.ac.uk/id/eprint/705394

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