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A threshold vector autoregression (TVAR) is estimated to study the effects of oil price shocks on Canadian output and price level. While much of the literature has investigated potential asymmetric effects of positive and negative oil price shocks within a linear vector autoregression (VAR), we do so within a nonlinear VAR. Further, we extend the analysis to consider the correlation between asymmetries associated with the business cycle phase and size/sign asymmetries. Positive oil price shocks are found to have a stronger effect on output than negative oil price shocks. This asymmetry is significant in recessions, but lessened during expansions. The results also suggest that the reduction in inflation due to a negative oil price shock is larger than the increase in inflation following a positive oil price shock, especially during periods of low output growth. Yet, neither inflation nor output growth seems to vary disproportionately with the size of the oil price shock. In general, the results are robust to the ordering of the variables in the VAR process and to the time window over which the net oil price change is computed.

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We analyse the direction of causality between public debt and real economic growth in a sample of 20 OECD countries for a period of 40 years starting in 1970. Given the persistence of real growth rates, we estimate canonical cointegrating regressions to allow for the possibility of stochastic cointegrating vectors. We then make inferences about the direction of causality by means of both Granger tests and VAR-based tests that do not depend on whether the series are integrated or cointegrated. We found that while modern welfare states tend to face low real growth following increases in public debt, more traditional welfare states and those with larger governments typically exhibit either causality from low growth to debt accumulation or bidirectional causality. However, the heterogeneity of the results suggests caution when making general statements about the relationship between these variables. In particular, the causal link is intrinsic to each country and it cannot be inferred that higher debt always leads to lower economic growth.