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

Document Type : Research Article

Authors

1 M.A. graduate in Economics, Energy Economics specialization, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

2 Associate Professor, Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran (Corresponding Author).

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

10.22084/aes.2025.30786.3781

Abstract

This study investigates 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 examined over the period from 1997 to 2024. To analyze the data, various models including VAR, BEKK-GARCH, DCC-GARCH, VECH-GARCH, and CCC-GARCH are utilized to explore the dynamic interactions between these variables. The results indicate that increased economic uncertainty is generally associated with greater oil price volatility across most periods. However, in certain periods, rising oil prices may contribute to a reduction in economic uncertainty. Among the models used, the DCC-GARCH and BEKK-GARCH frameworks demonstrate superior capability in capturing the dynamic volatility transmission and the relationship with economic uncertainty. The findings suggest a bidirectional and predictable relationship, along with volatility spillovers, between global economic policy uncertainty and oil prices. However, the direct and short-term effects of shocks from one variable on the other are weak and often statistically insignificant. This relationship is more evident in terms of volatility correlations. In the long run, increases in oil prices may contribute to heightened global economic instability.

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Main Subjects

References

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Journal of Applied Economics Studies in Iran
Volume 14, Issue 54
August 2025
Pages 35-63

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