Oil price shocks, real economic activity and uncertainty

Amélie Charles, Chew Lian Chua, Olivier Darné, Sandy Suardi

Research output: Journal PublicationArticlepeer-review

2 Citations (Scopus)


This paper develops a structural factor vector autoregressive (SFVAR) model to study the effect of oil price shock on economic activity. The model allows both types of uncertainty (real economic activity and oil price) to directly affect oil prices and economic activity. More importantly, the factor variable, which is akin to the macroeconomic uncertainty measure of Henzel and Rengel (2017), captures the significant indirect spillover effects of both supply-related (oil prices) and demand-related (business cycle) shocks on oil prices and economic activity. By incorporating the indirect effect of this macroeconomic uncertainty, the response of economic activity to oil price shocks is amplified. In some countries the real effect is prolonged. Results for net oil exporting (importing) countries show that an oil price hike has an appreciably positive (negative) effect on economic activity. The factor dynamics of all countries, except for France, are highly correlated with each other, while they are all moderately correlated with some commonly used measures of macroeconomic uncertainty.

Original languageEnglish
Pages (from-to)364-392
Number of pages29
JournalBulletin of Economic Research
Issue number3
Publication statusPublished - Jul 2021
Externally publishedYes


  • factor model
  • impulse response
  • oil price uncertainty
  • outliers
  • real uncertainty

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Oil price shocks, real economic activity and uncertainty'. Together they form a unique fingerprint.

Cite this