Background and Motivation
The United States debt ceiling—the legal limit on federal borrowing—has been a recurring source of political and economic uncertainty, especially as U.S. national debt has nearly doubled over the past decade. While existing research has explored how broad economic policy uncertainty affects financial markets, little attention has been paid to the specific impact of debt ceiling uncertainty on commodity markets, particularly crude oil. Given oil’s central role in the global economy, understanding how U.S. fiscal policy risks transmit to energy markets is crucial for investors, policymakers, and industry stakeholders.
Methodology and Scope
To investigate this relationship, researchers constructed a monthly Debt Ceiling Uncertainty Index based on the frequency of related terms in U.S. newspaper coverage from 1998 to 2023. They then examined six major crude oil markets: WTI and Brent futures and spots, as well as Oman and Tapis spot prices. The study employed two advanced econometric approaches: a nonparametric causality-in-quantiles test to capture nonlinear and asymmetric effects across different market conditions (e.g., bull, normal, and bear markets), and a time-varying parameter vector autoregressive (TVP-VAR) model to trace dynamic impacts over time and during specific debt ceiling events.
Key Findings and Contributions
Why It Matters
As the world’s largest economy, the U.S. fiscal policy uncertainty carries global ripple effects. Crude oil markets are particularly sensitive to changes in economic outlook and investor confidence. This study provides empirical evidence that debt ceiling impasses are not just political theatre; they have measurable, temporally nuanced consequences for energy prices and market stability. Recognising these patterns helps in distinguishing short-term noise from sustained risk, which is essential for accurate forecasting and risk management.
Practical Applications
Discover high-quality academic insights in finance from this article published in China Finance Review International . Click the DOI below to read the full-text!
China Finance Review International
News article
Does U.S. debt ceiling uncertainty drive crude oil markets? Evidence from heterogeneous impacts and influence channels
24-Nov-2025