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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 Sheng
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.

History

Refereed

  • Yes

Volume

31

Issue number

6

Page range

692-706

Publication title

Defence and Peace Economics

ISSN

1476-8267

Publisher

Taylor & Francis

Language

  • other

Legacy posted date

2020-04-06

Legacy Faculty/School/Department

Faculty of Business & Law

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