Abstract
In this study, the vector autoregression (VAR) model framework is enhanced by the incorporation of nonlinear effects. More specifically, this study employs a nonlinear VAR model for the post-global financial crisis (GFC) period, and thus, the impacts of the geopolitical risk on oil futures and volatility are discussed for Israel, Russia, Saudi Arabia, and Turkey. It is found that an increase in geopolitical risk will lead to an increase in oil futures, whereas the geopolitical risk changes in Israel, Saudi Arabia, and Turkey measured by 1, 2, 4, and 10 standard deviation shocks have higher impacts than that of Russia. In the case of Israel, it is revealed that the rise in geopolitical risk may lead to a steady upward trend in oil futures by reducing oil price volatility. Our study highlights the role of Israel, Saudi Arabia, and Turkey in oil prices, and it is suggested that the geopolitical risks of all countries may have symmetrical effects on oil futures. The impact of country-specific geopolitical risk shocks on oil price volatility can be considered asymmetric, and the responses are size-dependent. In this respect, we also show that the global geopolitical risk benchmark index may have an asymmetric impact on oil price volatility.
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Notes
- 1.
The data generation process of xt can both be assumed as symmetric and asymmetric in the context of the regression model; xt = α1 + ε1, t. Accordingly, the substitution of negative values of xt with zero exposes a censored variable \( {x}_t^{+} \). The censored variable can be defined as; \( {x}_t^{+}=\left\{\begin{array}{c}{x}_t^{+}\kern0.5em {x}_t>0\\ {}0\kern0.5em {x}_t\le 0\end{array}\right. \).
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Ozcelebi, O., Tokmakcioglu, K. (2021). Asymmetric Impacts of the Geopolitical Risk on the Oil Price Fluctuations. In: Bilgin, M.H., Danis, H., Demir, E., Vale, S. (eds) Eurasian Economic Perspectives. Eurasian Studies in Business and Economics, vol 16/1. Springer, Cham. https://doi.org/10.1007/978-3-030-63149-9_11
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