Political Uncertainty Cycles and the Impact of Oil Shocks on Supply Chain Pressures

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

This paper investigates how (the energy price) inflation supply chain pressures under different level of economic policy uncertainty. It provides empirical results based on impulse response functions using U.S. data from 1998 to 2024, the paper is not suitable for the publication at its current status and needs to clarify the points below.

Since the author(s) reference works by Bloom (2009), Fernández-Villaverde et al. (2011), among others, the model(s) in the reference paper attempt to incorporate different types of uncertainty, which can be categorized into three groups: the first involving demand shocks; the second involving supply shocks; and the third encompassing demand, supply, and financial shocks. Although these references consider various types of uncertainty, this study only includes energy price inflation shocks, as shown in equation (1). The model presented in this paper is not designed to incorporate multiple types of uncertainty simultaneously; focusing on a single type may therefore be insufficient. Furthermore, it remains unclear whether political uncertainty (mentioned in the paper's title) and economic policy uncertainty are interchangeable or represent distinct concepts.

The second point concerns the use of the Global Supply Chain Pressure Index (GSCPI) in the empirical analysis. The Federal Reserve Bank of New York describes the index as follows:

“Global supply chain pressure index: The GSCPI integrates a number of commonly used metrics to provide a comprehensive summary of potential supply chain disruptions. Global transportation costs are measured using data from the Baltic Dry Index (BDI), the Harpex index, and airfreight cost indices from the U.S. Bureau of Labor Statistics. The GSCPI also incorporates several supply chain-related components from Purchasing Managers' Index (PMI) surveys, [...]”

As clearly indicated, this index captures producers’ costs, which inherently correlate with producer price inflation. Therefore, the empirical findings may merely reflect the built-in mechanisms of the data construction itself, rather than offering a novel insight.

Third, regarding the increase in uncertainty during periods of rising inflation—regardless of the underlying causes of inflation—it is well-established that higher inflation amplifies redistribution effects, hampers economic decision-making, and can lead to economic downturns—concepts supported by both theory and empirical evidence. Therefore, this does not constitute a new or particularly compelling finding.

Finally, although the paper’s title includes the word "asymmetry," it does not adequately explain how or why asymmetry manifests in the results. Specifically, when uncertainty exceeds its trend, its effects tend to be larger and more persistent than when uncertainty is below the trend.

Minor issues:

• There are some grammatical errors in sentences on lines 39 and 52. Perhaps more. Grammar check seems to be necessary.
• There is a typo on line 136: the denominator of "a" should be U_u, not U_y.

Author Response

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Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

Summary:

The authors study the effect of political uncertainty on how oil price shocks impact worldwide supply chain stress. The authors apply a Jordà (2005)-inspired local projection method with dependent regimes to separate periods featuring high and low political uncertainty. The researchers discovered oil price changes create strong, lasting impacts on supply chains during periods of high political ambiguity yet these impacts dissipate throughout periods of political stability.

Strengths:

 

• The topic is timely and relevant, particularly in light of recent global disruptions such as COVID-19 and ongoing geopolitical tensions.

 

• The integration of political uncertainty cycles provides a novel and policy-relevant perspective.

 

• The paper is well-written and clearly structured, and the econometric implementation is overall well-executed.

 

Main Comments and Suggestions:

 

1. Clarification on Econometric Methodology – Local Projections:

• Local projections are commonly used to estimate impulse response functions, but we need to explain why we choose this method instead of other nonlinear options like structural VARs or threshold VARs. Specifically:

 

• What benefits do local projections provide in the regime-switching situation discussed here, especially when compared to smooth transition or threshold VAR models that specifically account for nonlinear dynamics?

 

• Have the authors thought about using more flexible options like time-varying parameter models (TVP-VARs) with Bayesian estimation methods, which can show changing impulse responses and are good for understanding changing relationships when there is uncertainty?

 

• It would be useful to directly reference relevant studies employing such approaches—for instance, Bekiros, Gupta, and Paccagnini (2016, Economics Letters), which explore oil price forecastability under economic uncertainty using nonlinear methods.

 

2. Nonlinear Model Specification:

• The binary regime classification based on whether the political uncertainty cycle is above or below a trend may be overly simplistic. A better way to understand the interaction might be to use methods like smooth transition models or time-varying coefficients, which could give a more detailed and accurate picture of what’s really happening. Such an approach would also align the analysis more closely with the literature on oil price asymmetries and uncertainty (e.g., Kilian-type models or TVP-SVARs).

 

• Moreover, the robustness of the results should be discussed or tested against alternative definitions of the regimes (e.g., quantile-based thresholds).

 

3. Policy Interpretation and Mechanism:

• The findings would benefit from a more in-depth discussion of the economic mechanisms at play. For instance:

 

• Do firms respond more strongly to oil shocks under political uncertainty due to precautionary behavior or investment delays?

 

• Could the authors explore these mechanisms empirically, perhaps through interaction terms in a linear regression framework to complement the nonlinear impulse response analysis?

 

4. Use of the Economic Policy Uncertainty (EPU) Index:

The authors should clarify whether their results are robust to alternative measures of uncertainty—such as the Geopolitical Risk (GPR) index or other global uncertainty indicators. Such information would help assess whether the findings are driven specifically by economic policy uncertainty or broader political/geopolitical instability.

 

Minor Comments:

 

• The role of the logistic function in the regime-switching local projection model (Equation 10) should be better explained.

 

 

Conclusion:

This research makes an important, timely addition that reveals how political ambiguity influences supply chain weaknesses when energy crises occur. The paper would benefit from additional information regarding the approach used for their econometric decisions, engagement with nonlinear modeling literature, and robustness testing for model specifications and uncertainty measurement.

Author Response

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Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

The paper titled "Political Uncertainty Cycles and the Asymmetric Impact of Oil Shocks on Supply Chain Pressures" addresses a highly topical and important subject. However, the scientific value of the presented article is questionable, and the results require refinement and improvement.

-In the first chapter " Introduction  &  Motivational  Model", the Authors draw conclusions not from empirical results but from simulations...

-The literature review is based on a very limited number of publications — the bibliography contains only 16 items. This analysis requires significant expansion.

-The Authors do not indicate their own methodological contribution, relying instead on well-known research methods.

-The Authors use daily data from January 1998 to May 2025, which they subsequently aggregate to a monthly frequency. In my opinion, monthly aggregation is too coarse — within a single month, various events can occur, often with opposing effects on commodity prices and the political situation. For example, during U.S. presidential elections, the situation at the beginning of the month (pre-election) can differ substantially from the end of the month (post-election).

-Furthermore, the lack of analysis regarding the range of changes within individual months results in a significant generalization of the findings — the actual scope of fluctuations should be included in the study.

-The description of the results is also superficial and requires further elaboration   

 

Author Response

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Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

The empirical findings may primarily reflect the inherent mechanisms of the data construction rather than offering a new insight. The comment was not about comparing PPI and GSCPI, but rather that GSCPI itself captures cost pressures from the producers' side, which naturally leads to the observed results. Additionally, based on the description of GSCPI, it is not necessarily narrower in scope than the PPI.

Additionally, the term "asymmetry" appears in the title without any further explanation in the text. If higher-than-average uncertainty results in a larger and longer persistence compared to lower uncertainty, this does not constitute proper asymmetry.

As a concluding remark, particularly the highlighted section from lines 385-395, there is some scope for clearer articulation, as the message currently seems somewhat rushed. The final sentence, "Overall, our results underline the importance of integrating political stability considerations into supply chain management and policy formulation, especially in the face of energy price shocks, to better manage and mitigate the associated economic impacts," might benefit from further clarification to avoid appearing overly vague.

Author Response

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Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

The article titled "Political Uncertainty Cycles and the Asymmetric Impact of Oil Shocks on Supply Chain Pressures" still requires improvement. I thank the Authors for their clarifications and revisions; however, they are not sufficient:

• Comment 1: In the first chapter " Introduction & Motivational Model", the Authors draw conclusions not from empirical results but from simulations...

• Response: This is a fair distinction. I’ve changed the end of my introduction to “perform econometric simulations” to stress this point.

The essence of my comment is that drawing conclusions based on simulations in this case is, in my opinion, incorrect.

• Comment 2: The literature review is based on a very limited number of publications — the bibliography contains only 16 items. This analysis requires significant expansion.

• Response: Noted. I’ve added within the literature review a paragraph citing two more sources discussing the intersection between political stability and oil market demand. On top of this, significant expansion of referenced work has taken place with additional changes to the manuscript, particularly in the results “Discussion” section. As it stands, there are now 24 references in the bibliography, which seems more than appropriate for the scope of this paper.

The bibliography still requires expansion — 24 items is too few for this topic.

• Comment 3: The Authors do not indicate their own methodological contribution, relying instead on well-known research methods.

• Response: As an applied work, I see no issue with this. I would politely push back and highlight that the results and innovativeness of the supply chain pressure index and political uncertainty measurements as data sources in combination with our methodology present a unique contribution that enriches the intersection of the literatures on oil price shocks and political stability with the relative new literatures on supply chain stress.

This is meant to be a scientific paper intended for an academic journal — in my view, such work requires a clear indication of the authors’ original methodological contribution.

• There are still editorial issues, e.g., table captions should be placed above the tables.

Author Response

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Author Response File: Author Response.pdf

Round 3

Reviewer 1 Report

Comments and Suggestions for Authors

Thank you for the responses.

Accept in present form.

Reviewer 3 Report

Comments and Suggestions for Authors

The Authors took the reviewers comments into account and made satisfactory adjustments.