Nelson Hall 4108, Box 8110
Raleigh NC, 27695
North Carolina State University
This paper studies how exogenous changes in oil price uncertainty affect GDP and other macroeconomic variables. To identify exogenous changes in oil price uncertainty in a VAR, we introduce an article count index related to OPEC, which rises following important OPEC meetings, political upheaval in OPEC nations, and terrorist attacks. Positive innovations in the index lead to increased oil price uncertainty and small but statistically significant declines in the growth rate of U.S. real GDP. A New Keynesian model in which oil usage is required for the utilization of both capital and durable goods also produces declines in GDP and other macroeconomic variables following an increase in real oil price uncertainty. Both the empirical and theoretical results are shown to be robust to a number of variations to the models.