Unveiling the Effect of Mean and Volatility Spillover between the United States Economic Policy Uncertainty and WTI Crude Oil Price

Round 1

Reviewer 1 Report

Dear authors.

In General, i have a good impression about this manuscript and only few minor comments to the content, which are showed in the attached pdf.

Despite this, i can't recommend its publication in this journal, since i don't see the connection with sustainability or sustainable development issues.

I propose to extend Abstract, Introduction and Concluding parts, to show, for example, how this study could support policy makers and the development of sustainable decisions.

Comments for author File: Comments.pdf

Author Response

 

Comment:

In General, I have a good impression about this manuscript and only few minor comments to the content, which are showed in the attached pdf.

Despite this, I can't recommend its publication in this journal, since I don't see the connection with sustainability or sustainable development issues.

I propose to extend Abstract, Introduction and Concluding parts, to show, for example, how this study could support policymakers and the development of sustainable decisions.

Response:

Thank you very much for your appreciation for our manuscript. We acknowledge your efforts and quality time towards our manuscript. Moreover, in response to your comments, we have revised our manuscript and remove all errors as per your valuable suggestions (fixed reference style, fixed caption errors, the color of text, remove the repeated equation, and removed the top title of figure 3).

Moreover, the topic does fall in the domain of this journal and we have revised abstract, introduction, and conclusion as per your suggestion.

Thanks!

Reviewer 2 Report

Referee Report of “Unveiling the effect of mean – and volatility spillover 2 between the United States economic policy 3 uncertainty and WTI crude oil price” in Sustainability.

 

Objectives: Through the estimations of BEKK-GARCH models and Granger causality test, the paper concludes that there exists a one-way relationship from EPU to WTI crude oil prices.

 

Comments:

1. Format/Typo
   7. I believe there are couple compiling/coding errors on page 3 and page 7.
   8. On page 7, line 217, there is a typo. “WIT” should be “WTI.”
   9. There are rooms of improvement in presenting tables. For example, I would say something like this “In Table 4, we provide the Granger-causality test results…” instead of “The above results of the Granger…”, I mean the graph is not even at the top part of the paper. Same can be said about other tables.

 

2. Methodology/Content
   1. Need more explanation about EPU index. For instance, if EPU is 120, how does this compare to a month where EPU is 140? Does it mean more uncertainty or less uncertainty? Further, is the impulse response a one standard deviation of a variable “shock”? For instance, response of DLGWTI to DLGUSAEPU, do you mean one standard deviation of DLGWTI “shock”?
   2. One of the components in this index, Economic Forecaster Disagreement, including CPI, purchases of goods and services by state and local governments, and purchases of goods and services by the federal government, items or variables that actually are affected by the movement of oil price through the production cost channel. However, in your analysis, it is a one-way street, where EPU affects the price of crude oil, but not the other way around? How would you convince to your audiences that oil prices will not affect EPU if one of the components of EPU index is composed or affected by oil prices?
   3. Would the result be the same if you use other index provided by the same organizations? Index such as one of the series of Categorical EPU data?

Author Response

Comments:

 

Format/Typo

1. I believe there are couple compiling/coding errors on page 3 and page 7.

Response:

First of all, Thank you very much for your quality time to review our manuscript. We have carefully considered your suggestions and revise our manuscript point-by-point. We have fixed these coding errors.

 

2. On page 7, line 217, there is a typo. “WIT” should be “WTI.”

Response:

The indicated typo has been fixed in the revised manuscript.

 

3. There are rooms of improvement in presenting tables. For example, I would say something like this “In Table 4, we provide the Granger-causality test results…” instead of “The above results of the Granger…”, I mean the graph is not even at the top part of the paper. Same can be said about other tables.

Response:

The revised manuscript has been copyedited by professional language editor and fixed all these concern.

 

Methodology/Content

1. Need more explanation about EPU index. For instance, if EPU is 120, how does this compare to a month where EPU is 140? Does it mean more uncertainty or less uncertainty? Further, is the impulse response a one standard deviation of a variable “shock”? For instance, response of DLGWTI to DLGUSAEPU, do you mean one standard deviation of DLGWTI “shock”?

Response:

Really appreciate your comments and suggestions. I put more details about EPU index in the manuscript, including definition, source, calculation method, and meaning. About the impulse response, it is indeed one standard deviation of a variable “shock”. However, in the graph DLGWTI to DLGUSAEPU, it means the response of DLGWTI under one standard deviation of DLGUSAEPU “shock”.

 

2. One of the components in this index, Economic Forecaster Disagreement, including CPI, purchases of goods and services by state and local governments, and purchases of goods and services by the federal government, items or variables that actually are affected by the movement of oil price through the production cost channel. However, in your analysis, it is a one-way street, where EPU affects the price of crude oil, but not the other way around? How would you convince to your audiences that oil prices will not affect EPU if one of the components of EPU index is composed or affected by oil prices?

Response:

It might because that WTI crude oil price occupies a little place in the EPU index while the latter contains a considerable variety of information about three different components. The overall EPU Index is the average value, using weights of 1/2 on broad news-based policy uncertainty index, and 1/6 on each of other three measures (the tax expirations index, the CPI forecast disagreement measure, and the federal/state/local purchases disagreement measure). Chen et al. (2019) give similar results when performing Granger causality tests between global economic policy uncertainty and WTI oil price. Therefore, for this point in time, we only measure in a one-way street.

 

3. Would the result be the same if you use other index provided by the same organizations? Index such as one of the series of Categorical EPU data?

Response:

In response to your suggestions, if other data is used, strictly speaking, this new data should be recalculated and analyzed, because the empirical results will be different with the change of the research object and sample interval. A logical relationship between variables does not indicate similar empirical results. However, if the original data is replaced by Categorical EPU data, Qin et al. (2020) propose that there are time-varying interactions between WTI oil price and monetary EPU (MEPU), fiscal EPU (FEPU), trade EPU (TEPU). MEPU has a closer relationship with WTI oil price than FEPU and TEPU before Trump becomes the U.S. president. Based on Qin’s results, we can postulate that there may also be volatility spillover effects between Categorical EPU data and WTI crude oil price, but we still need to address the specific data to get the exact results. Based on all these justifications, we have applied the same.

Round 2

Reviewer 1 Report

Dear authors,

1.Line 23. I suppose that "stainability" should be replaced with "sustainability".

2.Please, add numbers for each equation.

3.Figure 2. It is suggested to change the colour of text. Black will be much better for readability.

4.Lines 275-277. It is necessary to change the style of references.

 

After these little changes, i recommend this article for publication in the Sustainability.

Author Response

Thank you for accepting our manuscript. We highly appreciate your efforts and quality time to improve our manuscript. We have revised our manuscript according to your comments.

1.Line 23. I suppose that "stainability" should be replaced with "sustainability".

Response:

We have replaced the word “stainability” with “sustainability”.

2. Please, add numbers for each equation.

Response:

All the equations are properly numbered as suggested.

3.Figure 2. It is suggested to change the colour of the text. Black will be much better for readability.

Response:

The text colour of Figure2 has been turned into black.

4.Lines 275-277. It is necessary to change the style of references.

Response:

We have revised the said references and double-checked throughout the manuscript.

Thanks.