What is an oil shock? Panel data evidence

What is an oil shock? Panel data evidence

This paper characterizes the nonlinear relation between oil price change and GDP growth, focusing on the panel data of various industrialized countries. Toward this end, the paper extends a flexible nonlinear inference to the panel data analysis where the random error components are incorporated into the flexible approach. The paper reports clear evidence of nonlinearity in the panel and confirms earlier claims in the literature–oil price increases are much more important than decreases. Our result suggests that the nonlinear oil-macroeconomy relation is generally observable over different industrialized countries and it is desirable for one to use the nonlinear function of oil price change for GDP forecast.