The Relationship Between Global Macroeconomic Policy Uncertainty and Oil Prices Using Combined VAR and MGARCH Models

Articles in Press

Document Type : Research Article

Authors

1 Economic Sciences, Faculty of Economics and Management, Tarbiat Modares University, Tehran, Iran

2 Associate Professor, Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran

10.22084/aes.2025.30786.3781

Abstract

This study examines the relationship between global macroeconomic policy uncertainty and crude oil price volatility. The Global Economic Policy Uncertainty (GEPU) index is employed as a measure of global economic uncertainty, and its relationship with oil prices is analyzed over the period from 1997 to 2024. To investigate these dynamics, the study utilizes VAR, BEKK-GARCH, DCC-GARCH, VECH-GARCH, and CCC-GARCH models to assess the evolving interdependencies between these variables. The results indicate that rising economic uncertainty is generally associated with increased oil price volatility. However, in certain periods, higher oil prices contribute to a reduction in economic uncertainty.



Moreover, the DCC-GARCH and BEKK-GARCH models demonstrate superior capability in capturing the dynamic nature of price fluctuations and their relationship with economic uncertainty. In the short term, rising oil prices lead to a decrease in economic uncertainty, whereas in the long run, sustained oil price increases may exacerbate economic instability. Furthermore, global economic uncertainty tends to drive up oil prices across different time horizons, though this effect weakens in the long run.



Additionally, the observed high correlation may suggest the presence of common macroeconomic factors influencing both variables.



The VAR model confirms the bidirectional relationship between these variables, indicating that both are primarily influenced by their past values. Meanwhile, the DCC model reveals that the correlation between oil prices and economic uncertainty remains stable but evolves gradually, with volatile periods tending to persist for extended durations. These findings can help policymakers and investors better manage economic risks and make informed decisions in energy market.

Keywords

Main Subjects

Journal of Applied Economics Studies in Iran

Articles in Press, Accepted Manuscript
Available Online from 27 May 2025

Files

Share

How to cite

Statistics