Estimation of the Impact of Oil and Gas Price Shocks on GDP Growth and Stock Returns in Central and Eastern Europe

Abstract

This study attempts to estimate the path-through effects from oil and gas-related shocks to GDP growth and stock returns in twelve CEE countries using structural VAR approach recently developed in the literature. The baseline model is the global oil market model which endogenizes oil price changes. This model is modified by the author and applied to the European gas market. Then the impact of identified structural global oil and European gas-related shocks on GDP dynamics and stock market returns is studied using finite distributed lag models and another structural VARs. The study confirms recent findings that the factors behind oil and gas price changes do matter – different underlying shocks impact GDP growth and stock returns in the CEE region in different ways. It’s shown that in certain CEE countries oil and gas price increasing global and European aggregate demand shocks lead to higher GDP and positive stock returns over 6-8 months horizon despite the fact that some of these countries are net oil and gas importers. However, if fuels price increases are due to oil and gas-specific demand shocks, then GDP and stock prices tend to fall over 10-12 months horizon. In general, gas-related shocks were found more important for CEE economies and stock markets than oil-related shocks, what is in line with regional energy mix fundamentals.