Oil and the asymmetric adjustment of UK output: a Markov-switching approach

This paper examines the role played by oil in influencing the growth in UK GDP. Our particular interest is the possibility that asymmetries might exist in such a relationship. Using Hamilton’s regime-switching estimation, we consider whether oil influences both the deepness and duration of the business cycle. We find that asymmetries arise insofar as positive oil price shocks are most likely to curtail the duration of the expansionary phase of the business cycle. This result is in contrast to existing studies of the oil price-macroeconomy relationship that have largely concerned the US.