Oil shock and economic growth in Japan: A nonlinear approach

This paper investigates the relationship between oil price shock and economic growth oil the basis of the nonlinear approach developed by Hamilton [Hamilton, J., 2001. A parametric approach to flexible nonlinear inference. Econometrica 537-573]. We use the approach, also in Hamilton [Hamilton, J., 2003. What is an oil shock? Journal of Econometrics 363-398.], of capturing this relationship in Japan in a nonlinear model. The idea is that negative oil price shocks (price increase) tend to have larger impact oil growth than positive shocks do. Our empirical evidence confirmed the existence of nonlinearity between these two variables and a flexible nonlinear model is estimated. Additionally, several other form of nonfinearity are estimated and tested. (C) 2008 Elsevier B.V. All rights reserved.