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posted on 29.03.2006by Mark J. Holmes, Ping Wang
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.
This paper forms part of the ESRC funded project (Award No.
L1382511013) “Business Cycle Volatility and Economic
Growth: A Comparative Time Series Study”, which itself is
part of the Understanding the Evolving Macroeconomy