Financial stability nexus with oil prices shocks and business cycle uncertainty during COVID-19: empirical trends of ASEAN economies.

Abstract

This study aims to analyze the correlation between financial stability, oil price shocks, and business cycle uncertainty in the economies of the Association of Southeast Asian Nations (ASEAN) amidst the COVID-19 pandemic. This study examines the interplay and effects of various factors on the economic resilience of the ASEAN region, utilizing data from ten-member countries spanning the years 2002 to 2022. The results underscore the notable impact of oil price shocks on financial systems' stability, suggesting that oil price variations have the potential to disrupt financial markets, particularly in the context of the ongoing pandemic. Moreover, the research illustrates that the presence of business cycle uncertainty amplifies the negative consequences of oil price shocks, thereby heightening their influence on the financial system's stability. The study also uncovers a robust correlation between the COVID-19 pandemic and heightened levels of business cycle uncertainty within the ASEAN economies. The ongoing global pandemic has increased market volatility, a deceleration in economic growth, and disruptions in supply chains, generating a heightened sense of uncertainty within the business landscape. As a result, the heightened level of uncertainty has impeded the efficacy of monetary and fiscal policies in preserving financial stability.