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Factors Affecting an Economy's Tolerance and Delay of Response to the Impact of a Positive Oil Price Shock

This paper applies a multivariate threshold model to estimate a country�s threshold level of economic tolerance (c) and delay of response (d) to the impact of a positive price change and its shock. Regression analysis is employed to investigate the factors affecting c and d. We find: (1) as a country becomes more advanced in economic development and acquires a lower ratio of energy use in its industry and transportation sectors, the threshold of tolerance is greater as evidenced by the positive impact of an oil price change and its shock; (2) if a country has a lower ratio of energy use in the industry sector, a lower energy import ratio and is more advanced in economic development, it will have a longer delay; and (3) as an economy becomes more advanced, the length of the response time from the impact of the shock of an oil price change will be longer.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Energy Security; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Multivariate threshold regression model, threshold value, oil price shock, delay of threshold variable, cointegration

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No4-1

Published in Volume 29, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.