Oil Price Uncertainty

42 Pages Posted: 14 Jun 2006 Last revised: 3 Mar 2010

See all articles by John Elder

John Elder

Colorado State University

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: March 1, 2010


The theories of investment under uncertainty and real options predict that uncertainty about, for example, oil prices will tend to depress current investment. We reinvestigate the relationship between the price of oil and investment, focusing on the role of uncertainty about oil prices. We find that volatility in oil prices has had a negative and statistically significant effect on several measures of investment, durables consumption and aggregate output. We also find that accounting for the effects of oil price volatility tends to exacerbate the negative dynamic response of economic activity to a negative oil price shock, while dampening the response to a positive oil price shock.

Keywords: Real Options, Oil Volatility, Vector autoregression, Multivariate GARCH-in-Mean VAR.

JEL Classification: G31, E32, C32

Suggested Citation

Elder, John and Serletis, Apostolos, Oil Price Uncertainty (March 1, 2010). Journal of Money, Credit, and Banking, Forthcoming, Available at SSRN: https://ssrn.com/abstract=908675

John Elder (Contact Author)

Colorado State University ( email )

Dept of Finance & Real Estate
1272 Campus Delivery
Fort Collins, CO 80523
United States
970-491-2952 (Phone)

HOME PAGE: http://lamar.colostate.edu/~jelder

Apostolos Serletis

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
403 220-4091 (Phone)
403 282-5262 (Fax)

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