Impact of geopolitical risk and economic policy uncertainty on oil price

Geopolitical events and economic uncertainty, such as war, civil turmoil, massive terrorist acts, can cause significant fluctuations and swings in oil prices, which contributed to increased volatility of the international oil prices. We use the GARCH and MGARCH model to assess the impact of geopolitical risk and economic policy uncertainty on volatility of oil prices, and the spillover effects between oil prices, with the Geopolitical Risk and Economic Policy Uncertainty as exogenous shock. We exploit an unique time series data set of Geopolitical Risk index recording monthly intervals of oil prices from January 2002 to December 2022. Our findings have two-folds. First, both geopolitical risk and economic policy uncertainty affect oil price’s volatility. Second, there exists stronger short-persistent spillover effect between different returns of different oil prices in monthly scope.