Do Crude Oil Prices Drive Economic Policy Uncertainty? A Study Of The BRICS In The Context Of Structural Change Effects

BRICS countries play an important role in global trade cooperation as the most strongly developing emerging economies.Crude oil is an indispensable traditional energy source for the development of the real economy.In recent years,the governments of BRICS countries have introduced many favorable policies on oil import and export in order to meet the rapid transformation of economic development and the goal of deepening industrial structure reform.The energy structure of their countries has also been transformed as a result.At present,this paper also in the environment of great changes in economic policy uncertainties,especially in the current period of economic depression due to the COVID-19 pandemic,which makes study of oil price changes and economic policy uncertainties of each country more and more important to scholars.This paper firstly review the relevant literature and explain the crude oil price formation mechanism,establish the theoretical mechanism between the two by analyzing the relevant theories,and build a theoretical model with reference to the previous studies.Based on the development of emerging economies,this paper discuss the monthly economic policy uncertainty of each of the five BRICS countries from Jan 1997 to Mar2020.In this paper,we first prove the time-varying correlation between the two using the non-linearity of the sample data through the BDS test,and then verify parameter stability test.The above empirical results conclude that the sample data have structural breaks,and the traditional empirical analysis may cause inaccurate conclusions.Therefore,this paper combines the quantile regression and Bootstrap sub-sample Rolling window test to research the relationship between economic policy uncertainty in BRICS countries and crude oil price shocks.The empirical results exhibit asymmetry,with positive effects on EPUs in China,India,and Brazil when the oil market suffers a supply shock.Our findings are consistent with a realistic business cycle model of oil price shocks under the influence of supply and demand channels.In turn,the EPU of BRICS countries also has an impact on the oil market,but its importance varies considerably and is mainly related to oil demand.Robustness tests also confirm the basic regression results and the paper provides an explanation for the endogeneity problem.Understanding the relationship between policy uncertainty in the BRICS countries and the oil market can help investors allocate their assets appropriately.Policymakers in each countries would also benefit from this in rebalancing the energy landscape and stabilizing national economies.BRICS countries should improve their national strategic oil reserves to guarantee energy diversification and establish a market-based energy price system to stabilize the impact of oil shocks on national economic policy uncertainty.