Effects Of Oil Price Changes Research Articles

Uncovering the dynamic relationship between oil prices and external trade in OECD countries

This study investigates the impact of oil price fluctuations on trade, including the exports and imports of goods and services, fuel exports and fuel imports. For this purpose, we employed a Pooled Mean Group estimator on the autoregressive distributed lag (PMG–ARDL) model. This approach helps investigate the short-run and long-run effects of oil price changes on trade indicators considering the difference of convergence path across countries while handling problems of endogeneity. This study examines a strongly balanced panel dataset of 34 OECD countries over the 26 years from 1995 to 2020. Overall, the findings indicate that rising oil prices have a positive and significant impact on all trade indicators. The results are consistent with the immediate and persistent influence of oil price fluctuations on trade. Nevertheless, the effects of other explanatory variables on trade vary across different trade indicators and in the short and long runs. From a policy perspective, it is vital to comprehend the appropriate policy responses to oil price changes to achieve the expected trade outcomes.

Do institutions matter for oil prices and economic growth relationship?: A regulatory policy implication

This study empirically investigates the moderating effect of institutional quality on the oil price-economic growth relationship among selected African oil-importing economies for a thirty-year period from 1990 to 2020. The study employs a panel autoregressive distributed lag (PARDL) model using a pooled mean group estimator (PMG) with oil price and institutional quality as the main variables. Results from the analyses indicate that oil price increase has a negative effect on economic growth in oil-importing countries and these results are consistent with the previous findings by Kudabayeva et al. (2024) amongst others. Moreover, the study established a positive and significant effect of institutional quality on economic growth. The positive and significant effect of the interaction term between oil price and institutional quality suggests that better quality institutions are critical for moderating the negative effects of oil price changes on economic growth, consistent with findings by Abdelsalam (2023). The findings from this study suggest that net oil importers should focus on eliminating dependency on oil energy and promote investment into alternative non-petroleum renewable energy sources for sustainable development. Policy reforms should focus on strengthening of robust institutions to mitigate the effects of oil price shocks and promote the growth prospects of African countries.

Is the Influence of International Oil Price Changes on Economic Growth Significant in India?

The changes in the price of oil by creating supply-side shocks, inflation risks, and exchange rate risks, generate havoc in the development process of oil-importing countries like India. In this perspective, this study examined the degree and direction of connection among the price of oil and economic growth in India while controlling for the influences of exchange rate, real interest rate, rate of inflation, net inflows of foreign direct investment, and trade openness. The work uses the auto-regressive distributed lag bounds test approach and provides evidence in support of the negative effect of oil price changes on the long-run growth of the Indian economy when net inflows of foreign direct investment and foreign exchange rate exert statistically significant negative effects on this relationship. However, trade openness has a statistically significant positive effect. It is further observed that this long-run relationship has a convergence tendency towards the equilibrium value through short-run adjustments, thereby making the estimated relationship stable. The implication is that international oil price fluctuations can be used to predict the country's long-run economic growth. Besides, a policy effort is required to promote alternative energy consumption at home to keep oil demand under control. Furthermore, trade policies are required to be revisited to boost exports by the country to accommodate the negative effects of increases in the price of oil at the international level on economic growth.

Do Crude Oil Price Fluctuations Affect the Sectoral Stock Returns: Evidence from India

Crude oil is a vital energy source for industrialised and developing countries. Both investors who trade crude oil derivatives and firms that use oil as raw material for production monitor oil supply and demand. Disruption in the flow of oil in the commodity markets, therefore, leads to oil price volatility that affects major economies worldwide. Often, geopolitical and natural conditions could adversely impact the oil price and the financial markets react to such fluctuations in oil prices. This paper analyses the effects of oil price changes on sectorial stock returns in India. Using daily returns of S&P BSE Sensex, S&P BSE Oil & Gas and S&P BSE-Auto sectoral indices from January 2000 to March 2020, we examined the impact of Brent crude oil price fluctuations on the two major sectorial stock indices and overall market index. The results of the Granger causality test show significant results on S&P BSE-Sensex and S&P BSE-Oil and Gas Index Returns except S&P BSE-Auto Index Returns. Further for contemporaneous association between the oil price changes and sectorial returns, we operationalised the simple regression analysis. The results from the regression analysis show statistically significant impact of crude oil price fluctuations on the sectorial returns.

Asymmetric effects of oil price shocks on EUR/USD exchange rate and structural shock decomposition in a BVAR model with sign restriction

We use a VAR model with two exogenous and eight endogenous variables to evaluate the asymmetric effect of oil price changes on the EUR/USD exchange rate. The parameters are estimated with the Bayesian technique using the U.S. and the Eurozone quarterly data from 2001 to 2021. The sign restriction methodology is employed to obtain the VAR model’s structural form from its reduced form. The suggested metrics show highly time-variant oil price effects on the EUR/USD exchange rate. Oil price variability accounts for about half of the exogenous variables shocks that account for about one-third of the deterministic part of the model, which explains about two-thirds of the EUR/USD exchange rate volatility. The structural shock and historical variance decomposition identify significant time-dependent endogenous variables shocks behind the EUR/USD exchange rate variability. The impulse–response function shows asymmetric direct and indirect effects of oil shocks on the EUR/USD exchange rate, whose reaction to a positive oil price shock is more intensive, less smooth, and takes longer than in a negative shock. The dollar appreciates within three quarters after oil price increases, which suggests the United States has a specific comparative advantage compared with the Eurozone in offsetting the effects of the oil shocks.

Effects of Oil Price Shock on the Exchange Rate of National Currencies in Oil-Rich Countries: In the Case of some Arab Countries and Azerbaijan

In the article, the effects of oil price changes on inflation and the exchange rate in Saudi Arabia, Iraq, Kuwait, and UAE, as well as in Azerbaijan, were econometrically assessed. The comparison between Azerbaijan and these Arab countries was made because oil revenues play an important role in the economy of these countries, but its effects are different. Saudi Arabian riyal, Iraqi dinar, Kuwaiti dinar, and UAE dirham depend on oil prices in the world market for the long run. In the short run, there is no such dependence. It is confirmed that Azerbaijani manat is dependent on oil revenues for the long run. Addiction is not felt in the short run. In the oil-rich Arab countries and Azerbaijan, the non-dependence of the national currency on the world market on oil prices is due to the state regulation of the national currency’s exchange rate in these countries. In none of these countries is the national currency liberal, and its exchange rate is not determined by supply and demand in the market.

Study of the impact of crude oil prices on economic output and inflation in Saudi Arabia

Our work analyses the effects of oil price changes on economic output and inflation in Saudi Arabia by employing both linear and nonlinear autoregressive distributed lag models over the period 1980–2021. The results report that crude oil price changes have only asymmetric impacts on economic output in Saudi Arabia. The increases in crude oil price result in higher output growth in the long run whereas their decreases do not have impact on output growth in both the short and long run. Crude oil price variations (increases or decreases) have symmetric impacts on inflation in both the short and long run in Saudi Arabia. The rises in crude oil prices induce higher inflation whereas their decreases lead to lower inflation in both the short and long run. Appreciation of Saudi currency can lead to higher inflation only in the short run. Thus, Saudi authorities should accompany the changes in oil prices by some policies to combat inflationary pressures and their consequences.

Has the Asymmetric Effect of Oil Price Change in Inflation Expectations Been Impacted by the COVID-19 Outbreak? A Comparison Between the United States and China

Economists and policymakers believe that households’ and firms’ expectations of future inflation are key determinants of actual inflation. This paper applies the ARDL model and nonlinear ARDL model to long-term inflation-targeting policy mechanisms in the United States and China to assess the impact of oil price dynamics and asymmetries on inflation expectations, as well as the difference of this impact before and after the COVID-19 pandemic. In order to show the significant role of the COVID-19 outbreak, this paper includes the data from 2010 to 2021 and takes the pandemic period as a structural break. Taking oil price changes as a variable of interest, and introducing some other significant variables, we find that during the pandemic, the positive impact of oil price shock on U.S. inflation expectations has enhanced, whereas the positive impact on Chinese inflation expectations has weakened. There is also sufficient evidence of the existence of the asymmetric effects of oil price changes on inflation expectations in both countries, but the positive oil price change in the United States has always played a larger role than the negative oil price shock. In China, the impact of positive oil price shock was greater than that of negative oil prices before the epidemic and the effect of negative oil price shocks has increased significantly in the COVID-19 regime.

Does carbon emission react to oil price shocks? Implications for sustainable growth in Africa

This study examines the asymmetric effect of oil price changes on CO2 emissions for 30 African countries from 1987 to 2019. Using the panel non-linear autoregressive distributive lag (NARDL) methodology, the study reveals that an asymmetric relationship exists between oil price and CO2 emission as positive changes in the oil price are associated with a reduction in CO2 emissions. The negative change is also found to be associated with an increase in CO2 emission across the panel countries. In addition, in the long run, the degree of CO2 emission response to positive changes in oil price is more in oil-importing countries relative to oil-exporting countries. While CO2 emission response in oil-exporting countries responds more to negative changes in oil prices than in oil-importing countries. When we examine the response of GDP to a reduction in CO2 emission, we found that while a negative change in CO2 is associated with an increase in GDP in oil-importing countries, negative changes in CO2 emission significantly lead to a reduction in GDP in net oil-exporting countries. The study suggests strengthening the call for carbon emission reduction, especially in oil-exporting countries as oil price does not exhibit enough push factor towards the mitigation of CO2 emission in the continent.

The impact of oil price changes on inflation and disaggregated inflation: Insights from Ghana

Numerous studies have examined the impact of changes in oil price on economic activities in both developing and developed countries. Yet, studies on the impact of oil price on various sectors of the economy are limited, particularly in Ghana. To contribute to the literature and inform policy actions, we examine the impact of oil price changes on aggregated and disaggregated inflation where the disaggregated inflation comprises energy CPI, food CPI, Core CPI, and transport CPI. We applied Nonlinear Autoregressive Distributed Lag (NARDL) Model to quarterly data spanning from 2000Q1 to 2021Q1. The NARDL model was suitable for analysis because it accounted for asymmetries inherent in oil prices. Our results from the NARDL model suggest evidence of the asymmetric impact of oil price change on both aggregated and disaggregated inflation. However, the asymmetric effect of oil price changes on Transport CPI was statistically higher in magnitude than the other sub-indexes of inflation, suggesting that oil price changes affect the transport sector more than the other sectors of an economy. From a policy point of view, these findings imply that to stabilize inflation, policies should be designed to strengthen the transport sector to contain oil price shocks.

How Oil Price Changes Affect Inflation in an Oil-Exporting Country: Evidence from Azerbaijan

This research study aims to explore the inflationary effects of oil price rises in the case of Azerbaijan. The study covers 1997–2021 yearly data to estimate long- and short-term impacts while considering “oil price—money supply” interactions. Autoregressive Distributed Lag Bounds testing (ARDLBT), Fully Modified Ordinary Least Squares (FMOLS), and Canonical Cointegration Regression (CCR) cointegration methods are applied simultaneously. The research findings are: (1) oil price is a significant long-term determinant of inflation in Azerbaijan, affecting overall prices directly and indirectly via the money supply; (2) the effect is statistically significant in the short-term and happens indirectly, moderated by the money supply; and (3) oil price moderates the impact of the money supply over inflation in the short-term. A major limitation of the current study is that it omits the possible moderation impact of oil prices over inflation in Azerbaijan through the resulting inflationary pressure due to oil price rises in trade-partner countries and the government’s fiscal policy. Research findings require the Central Bank to consider indirect effects of oil price changes, especially due to money supply changes, when targeting inflation and addressing policy sustainability in Azerbaijan.

A Comparative Study on the Effects of Oil Price Changes on Commodity Prices, Stock Market and Indian Production

A Comparative Study on the Effects of Oil Price Changes on Commodity Prices, Stock Market and Indian Production

Time-varying causality between oil price and exchange rate in five ASEAN economies

The aim of this study is to investigate the effect of oil price changes on the exchange rates of the five ASEAN economies. In the study, a rolling and recursive evolving window algorithm is applied to detect changes in the link between oil price and exchange rate from January 1988 to June 2022 for five ASEAN countries. We extend the existing literature using the Time-varying Granger causality model, which captures sensitivities across various time horizons. The findings revealed heterogeneous effects of oil price on the exchange rate at different time horizons in terms of importance and magnitude over time. Our empirical results support the combined movements of oil prices and exchange rates against some important dates and events. The findings provide investors with insight into the utility of the shock transmission mechanism and how central banks design market intervention policies.

Crude oil price changes and exchange rate: Case of oil exporting countries in CEMAC

Purpose: Policy makers, academics and journalists have frequently discussed the link between oil prices and exchange rate in recent years. After the 2014 World’s biggest oil price drop that plunge CEMAC oil exporting countries into an external liquidity strain, due to the pressure raised on Euro to which CFA franc is pegged, this paper revisits the dependence between crude oil price changes and exchange rate.
 Methodology: Crude oil price is the main independent variable, though other independent variables have been considered. The change in crude oil price is captured through differentiation of average yearly crude oil prices. The real effective exchange rate (RER) is the dependent variable, captured with the consumer’s price index (CPI), which describes the strength of a currency relative to a basket of other currencies. The data used in this study were extracted from Word Bank Development Indicators (WBDI, 2020) and World Bank Commodity Price Data. The study covers the period 1990-2018. The main channels of transmission used in this paper are the terms of trade channel, the wealth or portfolio channel and the anticipation or expectation channel. A panel autoregressive distributive lag (ARDL) model was used.
 Findings: The result shows that there is a short run positive and insignificant effect of oil price changes on exchange rate of CEMAC oil producing countries. In the long-run, there is rather a negative and significant impact of oil price changes on exchange rate. More concretely, a unit increase in oil prices depreciates exchange rate of these countries by 0.4340 units and this is significant at 1%. The short run Cross-country analysis shows that the effect is negatively significant for Cameroon and Chad; positive and significant for Democratic Republic of Congo and Equatorial Guinea; but positive and not significant for Gabon. These results are likely linked to structural differences between countries as the dependence on oil revenue and the security situation are concerned.
 Recommendations: Given this negative long run damage of oil prices on exchange rate of CEMAC oil producing countries, it is highly advisable these countries increase direct investments in key economic non-oil sectors in order to reduce dependence. On the other hand, considering the unidirectional causality from exchange rate to oil prices, a policy of exchange rate anchor by BEAC is suitable in order to absorb the shock of oil price changes on exchange rate and eventually inflation in the these economies.

A new look at asymmetric effect of oil price changes on inflation: Evidence from Malaysia

The existing literature that examined the effect of oil price on domestic price inflation only focused on consumer price at an aggregate level. The studies that focused on producer and production levels, and based on disaggregated data are very lack. Besides, previous studies also mainly applied the linear regression approach in studying the effect of oil price. This study seeks to explore the mentioned issues by focusing on sectoral consumer (CPI), industrial (IPI), and producer (PPI) prices of Malaysia. The Markov-switching (MS) regression technique is applied. The models are innovated by incorporating the asymmetric effects of oil price changes. The results reveal different reactions of sectoral domestic price inflation to oil price changes. The oil price has asymmetric effects on domestic price inflation with higher impacts on industrial and producer prices than the consumer price. The effect is larger in sectors that have higher linkages with oil/ energy resources. These sectors are oil-intensive and are sensitive to oil price changes. Among these sectors are the CPI transportation sector, IPI manufacturing, and electrical sectors as well as PPI fuel, chemicals, and manufacturing sectors. However, oil is not the main factor causes to domestic inflation. The main determinants of inflation are real exchange rate, aggregate supply, and demand. Besides, the policy decisions are also influential on price stability. The sectors of CPI transportation, PPI animals & vegetable oils, and PPI fuel have a high tendency to increase prices and should be well-monitored.

Investigating the Impact of Oil Prices Changes on Financial Market Efficiency in Saudi Arabia for the Period (1980-2018): ARDL Approach

The impact of macroeconomic variables on the financial market efficiency has been a hot topic for decades. Thus, this study investigates the effect of oil price changes on the financial market performance using the estimation of Auto-Regressive Distributed Lag (ARDL) technique in Saudi Arabia for the period 1980-2018. The results revealed a long-run causality between the exchange rate, return on investment, and oil prices towards the financial market efficiency. However, only inflation and return on investment have causality effects on financial market efficiency in the short run. In addition, the exchange rate and oil price do not have causality running to economic market efficiency. Thus, both the short-run and long-run causality effects should be considered as guidelines to be followed by policymakers to avoid any misleading macroeconomic strategies in future strategic planning. The speed of adjustment reported from estimating the Conditional Error Correction Regression is (-0.114527). Also, the model was found stable from using both the CUSUM and CUSUMQ statistics.

Has the Asymmetric Effect of Oil Price Changes in Inflation Expectations Been Impacted by the COVID-19 Outbreak? A Comparison between the United States and China

Has the Asymmetric Effect of Oil Price Changes in Inflation Expectations Been Impacted by the COVID-19 Outbreak? A Comparison between the United States and China

The asymmetric effects of oil price changes on China’s exports: New evidence from a nonlinear autoregressive distributed lag model

China’s dependence on oil imports has greatly increased in recent years. Due to the rapid expansion of global trade, exporting plays an important role in the Chinese economy. This paper uses monthly data from January 2005 to April 2021 to examine the short- and long-term effects of oil price increases and decreases on China’s exports. Our empirical analyses are based on the nonlinear autoregressive distributed lag (NARDL) model, which can effectively capture asymmetric relations. The empirical results provide significant evidence of asymmetry, such that oil price increases have significantly larger effects than oil price decreases in the long term. Interestingly, we find that energy-intensive exports and some specific sectors (e.g., crude fertilizers, petroleum products, and organic chemicals) benefit from oil price increases. We also observe recent declines in the coal and coke sector following positive oil price shocks due to restrictions on coal consumption.

Does Institutional Quality Influence the Oil price-economic Growth Nexus: Evidence from African Oil Exporting Economies

The primary contribution of this study is to investigate how institutional quality affects the relationship between the oil price changes and economic growth on net oil exporters in African countries split into net oil exporters and net oil importers. Whether oil price changes are good for the growth patterns of African economies lies on the interaction between oil prices and institutional quality. Oil price increases for oil exporting economies result in increased revenue which will be distributed to economic boosters of the economy however, the net effect of such revenues to the economies solely depends on how institutions distribute the oil rents to the various sectors of the economy. In contrast to the traditional direct effect of oil price changes to economic growth, this study shows that the impact of oil price on economic growth is non-monotonic in institutional quality. Oil exporting economies can benefit from oil price increase if they have good institutions. This has been assessed by including an interaction term, oil price-institutional quality, in the Panel Auto-Regressive (PARDL) using the Pooled Mean Group (PMG) model. Such a methodological framework has an added advantage over other model as it allows for modelling of data with different orders of integration. The PMG estimator allows the intercepts, short-run coefficient, and the error variance to differ freely across groups while the long-run coefficients are the same. Using data from 1990 to 2016, it is revealed that the sign of the coefficient interaction is positive and significant as theoretically expected. Furthermore, the coefficient of the interaction term is greater than the coefficient of oil price as anticipated. This would mean that as long as institutional quality is good enough, oil price changes positively influence economic performance on oil exporting economies. As such, the findings of this thesis have important policy implications. Since implementation of quality institutions is an on-going process, the study results suggest that institutions should be strengthened towards economic activities rather than for political mileage.

Disaggregating the impact of oil prices on European industrial equity indices: a spatial econometric analysis.

This study investigates the relationship between daily returns of oil and ten European industrial equity indices for the period 2008–2017 using the spatial econometric technique. In our settings, the historical co-movements of sectoral returns are incorporated while modelling the contemporaneous relationships between oil and European sectoral returns. After controlling for regional and global equity risk factors, we find that oil returns pose a significantly positive effect on sectoral indices’ returns in line with previous studies. However, the magnitude of economic impact found mostly by earlier studies was largely underestimated without considering the co-movements of sectoral indices. The use of spatial econometric technique allowed us to disaggregate the total impact into a direct (due to oil price) and an indirect (due to spillover effect because of intra-industry co-movements) effect of oil price changes. Our results indicate that the direct economic impact of changes in oil prices on industrial returns is almost 31% more than what has been found by earlier studies. The negative spatial dependence among sectoral indices provides a useful tool to identify the source of the indirect impact of oil on overall equity prices in Europe that in turn explains the overestimation of direct impact by 31%.