Assessment of the asymmetric impacts of the geopolitical risk on oil market dynamics

Abstract

This study employs the time-varying parameter structural vector autoregression (TVP-SVAR) models to assess the asymmetric effects of the geopolitical risk (GPR) on oil production and oil prices for BRIC countries and in the global scale. Although slope-based asymmetry tests deriving from non-linear VAR model of Kilian and Vigfusson suggest that the effects on oil production and oil prices are symmetric, the directions and the magnitude of the impulse response functions (IRFs) of TVP-SVAR models did not confirm the relevant relationship. More specifically, it was revealed that the rise/fall of the GPR of Brazil, Russia and India can lead to increasing/decreasing oil prices. While our findings imply that changes in oil prices may not be a factor affecting the oil production through the changes in GPR, we stress that the increase/decrease of GPRs affect the future economic expectations negatively/positively which in turn leads to a change in the oil production.

Sources of real exchange rate fluctuations in Egypt

“…The model can take into account the linearity of the relationships between the variables in the focus model. Ozcelebi and Tokmakciogul (2022) used the Time-Varying Parameter Vector AutoRegressions (TVP-SVAR) model to examine the asymmetric effect of geopolitical risk on oil prices and oil production. They found that the effect of geopolitical risk is symmetric over oil prices and oil production.…”

“…To ensure the linearity of the model, following Ozcelebi and Tokmakciogul (2022) and Ozcelebi (2019), the Ramsey Regression Equation Specification Error Test (RESET) was used in the regression. The result shows that the model is free of error specification, and we fail to reject the null that the fitted regression is free of error specification since the t value is 0.7826 with a p value of 0.4394.…”