The aim of this paper is to investigate the asymmetric effects of the crude oil price on global economic policy uncertainty (EPU) using a nonlinear, autoregressive distributed lag approach. The results of the bounds test indicate that there is a long-run equilibrium relationship between economic uncertainty and crude oil price. Furthermore, we conclude that the long-run equilibrium relationship is a usual logical relationship and not a degraded relationship. The results of the asymmetric test also showed that the positive and negative shocks in oil prices do not have an asymmetric effect on the EPU in the long run and have an asymmetric effect in the short term. In addition, a negative shock may have a relatively greater effect in the long run compared to a positive shock while a positive shock may have a relatively greater impact in the short term compared to a negative shock. Our results are important to both investors interested in the oil market, as well as for policymakers.

The aim of this article is to investigate the asymmetric effects of the oil price on economic policy uncertainty for the period from January 1997 to May 2021 using a non-linear autoregressive distributed lag approach. The results of the bounds test indicate that there is a long-run equilibrium relationship between the economic uncertainty index and oil price. Furthermore, we conclude that the long-run equilibrium relationship is a usual logical relationship and not a degraded relationship. The results of the asymmetric effects in the short and long term also showed that the positive and negative shocks to oil prices have an asymmetric effect on the EPU index. In addition, the negative shock may have a greater absolute effect in the long run. Our results are important to both investors interested in the oil market, as well as for policymakers.

Purpose - This paper analyses the effects of the US economic policy uncertainty index and oil price changes on the dollar exchange rate over a monthly period from January 2006 to August 2020.

Methods - This paper uses the Markov-switching Vector Auto-Regressive (VAR) model.

Findings - The results show that the sharp decline regime in the exchange rate is the most stable. In addition, the impact of the oil price on the exchange rate of the concerned currencies is stronger than the effect of EPU on the exchange rate of these currencies. We also find that most of the effects of oil prices were negative, while positive for the Canadian dollar and the Japanese yen exchange rate.

Implications - Addressing this investigation contributes to many of the areas covered in recent macroeconomic and finance research. Moreover, such research can help predict changes in currency and oil prices better and create profitable investment and hedging strategies for currencies and oil.

Originality - We consider the effect of economic policy uncertainty (EPU) and oil price changes on the relationships between those markets and study these relationships under different market conditions.