Output, Uncertainty and Fuel Prices in the EU Countries

Abstract

In this paper we test whether the Friedman's second hypothesis is verified in the case of European Union countries, and we check for the role of fuel prices in influencing the economic output. More precisely, relying on both General Method of Moments and Mean Group approaches for a panel of EU-28 countries, over the period 2005 to 2017, we analyze the impact of inflation uncertainty, growth uncertainty and fuel prices on the economic growth rate. We show that inflation and growth uncertainty, as well as fuel prices, have a positive impact on economic growth in the short run; In the long run, the results reveal that inflation uncertainty has a negative influence on economic output, whereas the effect of economic growth uncertainty and fuel prices is no longer significant. We show that the diesel prices have a stronger impact on economic growth in the short run, compared with gasoline prices.