Dynamic Associations between GDP and Crude Oil Prices in Brazil: Structural Shifts and Nonlinear Causality

Abstract

This paper puts forward an in-depth investigation of the nonlinear associations between Gross Domestic Product (GDP) and international crude oil prices using the Brazilian aggregate as case study. We provide evidence on the existence of two sharply defined regimes in the Brazilian GDP since 1947: the first, very oil-dependent in the short-run and marked by high fluctuations in the economy, is majorly presented until late-1990’s; the second, concerning the greater part of the first two decades of the 21st century, is characterized by periods of greater stability and less immediate dependency on oil prices. The results also suggest the presence of other forms of nonlinear associations between crude oil prices and the Brazilian GDP besides those related to regime shifts or due to conditional heteroscedasticity, an unprecedented result in the literature. Findings and economic implications are further discussed.