Effects Of Oil Price Volatility Research Articles

Asymmetric Effects of Oil Price Volatility on Government Expenditure in Oil-Importing African Countries: Evidence from Zambia

This paper examines the impact of disaggregated oil price shocks the government expenditure in oil-importing African countries using the case of Zambia. The analysis utilizes a“Structural Vector Autoregressive (SVAR) Model” to evaluate the short-run effects, while a “Vector Error Correction Model (VECM) is employed to analyze the relationship over the long-run. Results of the short-run analysis reveal a notable positive influence of oil price shocks”on government expenditure that emanates from global aggregate and precautionary demand factors. The aforementioned results are clarified by the effects that increased global aggregate demand has on copper priсes, which in turn influences government revenue derived from taxes. Additionally, the transmission of “financial contagion and volatility spillovers” from the οil to the copper market clarifies the influence of precautionary demand on government expenditure. The findings obtained from the VECM indicate that global aggregate demand has positive effects on public sector spending in the long run. Additionally, the analysis demonstrates that the rate at which public sector spending recovers to its equilibrium level after a temporary deviation is both monotonic and statistically significant. Moreover, among the three categories of οil priсe hikes, Forecast Error Variance Decomposition analysis reveals that shocks related to precautionary demand have the most significant impact, accounting for 11.7% of the observed variation in public sector spending.

Assessing the Drivers of Economic Growth in Pakistan: A Time-Series Analysis of Foreign Direct Investment and Oil Price Effects

This research looks at the factors that drive Pakistan's economic growth, with a particular emphasis on the influence of foreign direct investment (FDI) and oil prices. Using data from 1998 to 2022, the study applies the Auto Regression Distributed Lag (ARDL) model to examine the link between FDI, oil prices, and economic growth. The empirical findings show that FDI has a beneficial impact on economic growth, highlighting its importance as a driver for economic development in Pakistan. In contrast, the study finds that rising oil prices harm economic growth, emphasizing the negative effects of oil price volatility. Considering these findings, the study underlines the need for policies that encourage FDI inflows and industrialization to drive economic growth. Furthermore, the study emphasizes the importance of government involvement to mitigate the negative effects of rising oil costs, since unchecked rises might stymie economic progress. Understanding the determinants of economic growth in Pakistan is critical for both policymakers and investors. FDI is critical for increasing productivity and creating jobs, yet oil price volatility can have a substantial influence on the country's macroeconomic stability and growth trajectory. Analyzing their effects gives useful insights for long-term economic growth initiatives. Overall, the study suggests a dual strategy for Pakistani policymakers: create a climate conducive to attracting FDI while taking steps to reduce the negative consequences of unpredictable oil prices. By prioritizing these policies, Pakistan may accelerate its economic growth and protect itself from foreign economic shocks.

The Effects of Oil Price Volatility on South African Stock Market Returns

The aim of this study is to assess the response of the South African stock market returns to oil price volatility, based on the daily South African stock market index, using the GARCH-Copula modelling technique. The results of the analysis show evidence of an asymmetric impact of fluctuations in oil prices on South African stock market returns, using a copula model specification, particularly the bivariate symmetrized Joe-Clayton (SJC) copula. The results also revealed that the EGARCH process is the best univariate model to capture oil price volatility. Interestingly, this study also revealed that the tourism industry is most dependent on oil price fluctuations, due to its heavy reliance on transportation costs. The economic implications of this study also suggest that sectors affected by oil price fluctuations need specific long-term and short-term monetary policy strategies. It is recommended that in the short term, expansionary monetary policy could assist in mitigating the impact of higher oil prices, while in the long-term, policies aimed at reducing the volatility in oil prices would be of great help in alleviating its harmful effect on stock market returns.

Oil Price Volatility and Federal Government Recurrent Expenditure in Nigeria: Mediating Role of Exchange Rate

An empirical examination of the impact of oil price volatility on federal government recurrent expenditure in Nigeria and the mediating role of exchange rate from 1980 to 2022 was carried out in this study. The Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model was used in the data analysis. The findings reveal compelling evidence that oil price volatility as measured using the Brent oil volatility has a significant effect on recurrent federal government spending patterns. The analysis also shows that exchange rate variations serve as significant control variable that influence oil price fluctuations and federal government recurrent expenditure. Hence, the study recommends that federal government should create and properly administer a stabilization fund to save excess oil revenue during periods of boom to lessen the immediate effects of oil price volatility and the abrupt impact on budgetary allocations on recurrent expenditure. There is also the need to have a deep-cut on unproductive recurrent expenditures by federal government and its appointees. The study further recommends the adoption of a closely monitored exchange rate policy by government.

Oil price uncertainty and the cost of debt: Evidence from the Chinese bond market

This paper explores the impact of oil price uncertainty affects the cost of debt in China. By analyzing the bond data from 2008 to 2019 in China, we find that oil price fluctuation boost bond offering spread, denoting that oil price uncertainty may increase the cost of debt. This increase is likely due to higher default risks resulting from the heightened oil price uncertainty. Moreover, non-state-owned firms and those in the energy industry are more susceptible to the effects of oil price volatility. Our findings also reveal an asymmetric effect of oil price uncertainty on the cost of debt, with a stronger impact observed from positive uncertainty compared to negative uncertainty. This study contributes to the current understanding of the ways in which oil price uncertainty impacts the cost of debt in an emerging country.

The impacts of oil price volatility on financial stress: Is the COVID-19 period different?

This study analyses the effects of oil price volatility on financial stress with various measures for a large panel of countries. The study places a special focus on comparing the pattern of these effects during the Great Recession period and the COVID-19 recession period. Using the local projection approach, the paper finds that oil price volatility has a positive and persistent effect on financial stress. However, the magnitude and the degree of persistency of oil price volatility impacts on financial stress are much greater for the Great Recession period than for the COVID-19 recession period. A possible explanation for this result would be that COVID-19 is better thought of as a “natural disaster” in which companies under stress were not being mismanaged. Another explanation would be that active intervention by the government through monetary and fiscal channels reduces the sensitivity of financial instability to oil price volatility during the COVID-19 period.

The Effects of Oil Price Volatility on Stock Market Development in Nigeria

This study examines the effects of oil price volatility on stock market development in Nigeria from the period 1993 to 2019. Average annual oil price is used as a proxy to measure oil price in this study while Proxies for stock market development are stoc

Effect of International Crude Oil Prices on Nigeria’s Gross Domestic Product from (1985-2020)

The aim of this study is to investigate the effect of oil price and its volatility on the development of Nigeria’s economy; this is due to the decline of the Nigerian economy as a result of decrease in daily oil production and plum-meting oil prices. The study assesses both long-and short-term effects of oil price volatility on real GDP in Nigeria. To achieve the basic objective of this research and to ascertain a comprehensive and robust outcome, the study adopted secondary data such as Nigeria’s Real GDP, Crude Oil Price, Real Exchange Rate and Foreign Direct Investment (FDI) that covers the period 1985 to 2020. In the analysis of data collected the research adopts Autoregressive Distributed Lag (ARDL) estimation technique. From the analysis, it can be deduced that in the short run, there is a positive impact of oil price on real GDP which is statistically significant at one percent level. As real exchange rate rises by one percent, the real GDP rises by 1.528 per cent, all things being equal. While the long run, the effect is positive and statistically significant measuring 14.67 positive effects on the economy. It also revealed that while oil price volatility affects economic development positively in the short term, its effect in the long term is not statistically significant. Findings from the study revealed that crude prices have a positive effect on GDP in Nigeria. Therefore, sustaining an equilibrium tempo of crude oil supply in Nigeria is crucial while the international community should allow the forces of demand and supply to play its role. This is because the rate of supply has effect on price and frequent change in price means high volatility. The article is structured as follows: introduction, literature review, methodology, data analysis, discussion of findings and recommendations.

The oil price uncertainty effect on stock returns of the Indian renewable energy firms under different market conditions

AbstractThis study investigates the oil price uncertainty effect on stock return of the Indian renewable energy firms under different market conditions. We use the Oil Volatility Index (OVX) as a proxy of oil price uncertainty. All renewable energy companies listed on the National Stock Exchange of India are considered. Monthly data are analysed from January 2009 to December 2019 using panel quantile regression. In the whole sample of the renewable energy firms, we find that the impact of oil price volatility on stock return is negative only in extreme market conditions. In subgroups of renewable energy firms, oil price volatility has negative coefficients in most quantiles. The oil price volatility change is decomposed into positive and negative changes to investigate the asymmetric effect. In subgroups of renewable energy firms' analysis, most of the asymmetric effects of oil price volatility are seen in the bearish market condition. The policymakers can use the findings to formulate policies as per the oil price volatility movement to ensure the growth of the renewable energy sector. Investors and portfolio managers can make appropriate strategies based on oil price volatility to maximise the investment return across market conditions.

Heterogeneous effects of oil price fluctuations: Evidence from a nonparametric panel data model in Canada

In this paper, we employ a nonparametric panel data technique to examine the impacts of oil price fluctuations on GDP per capita in two groups of oil-exporting and oil-importing provinces in Canada over the period 1984–2016. This technique allows the trend and coefficient functions to vary over the sample period as unknown functional forms. The results show that the relationship between oil price and GDP per capita is time-varying in both groups of Canadian provinces. While both groups of provinces benefited from the striking oil price hike of the 2000s, the relatively low oil prices before 2000 had positive effects only in oil-importing provinces. Our results highlight the vital role of interprovincial trade in mitigating the adverse effects of oil price volatility on the Canadian provinces.

Effects of Oil Price Volatility on Foreign Exchange of Major Oil Producing Countries in Africa

Effects of Oil Price Volatility on Foreign Exchange of Major Oil Producing Countries in Africa

The asymmetric effects of oil price shocks on the U.S. stock market

In this paper, we investigate the asymmetric relation between the price of crude oil and U.S. aggregate real stock returns. In doing so, we estimate a nonlinear bivariate structural vector autoregression that includes the effects of oil price volatility on stock returns. We use the estimates of our nonlinear model to calculate the responses of stock returns to unexpected increases and decreases in prices of crude oil and conduct a test of symmetry on these responses. In contrast to the existing literature, we find that aggregate returns respond asymmetrically to positive and negative oil price shocks, and oil price volatility plays a major role in asymmetries by having a negative effect on stock returns. Our empirical results hold in case of disaggregate returns, after reestimating our nonlinear bivariate model with the returns of various industries.

The impact of oil price volatility on stock markets: Evidences from oil-importing countries

This study investigates the effects of oil price volatility on stock markets. We consider the stock returns of ten major oil-importing countries: China, France, Germany, India, Italy, Japan, Korea, the Netherlands, Spain, and the U.S. from May 2001 to December 2019. To obtain a complete picture of the relationship between oil price volatility and stock returns, we apply both quantile regression and quantile-on-quantile regression approaches. Our empirical results indicate that oil price uncertainty has asymmetrical effects on stock returns; moreover, these asymmetric behaviors vary depending on not only the level of stock returns but also oil market conditions. The results show that increasing oil price volatility has a negative effect on stock returns when both oil price volatility and stock returns are low. However, when stock returns are high and oil price volatility is low, rising oil price volatility causes an increase in stock returns.

Oil Price Uncertainty, Globalization, and Total Factor Productivity: Evidence from the European Union

This paper uncovers linkages between oil price uncertainty, total factor productivity (TFP) growth, and critical indicators of knowledge production and spillovers. It contributes to the literature by investigating the effects of oil price volatility on TFP growth, controlling for two different channels for TFP growth; benefits from the quality of the national innovation system and from adopting new technologies. We use an unbalanced panel for 28 European Union countries for the period from 1990 to 2018. We find that oil price uncertainty has a negative and statistically significant effect on TFP growth, even after we control for technological advancements and the effects of globalization. We also find that the scale of research and innovation and international trade are positive contributors to TFP growth.

Oil Volatility Spillover into Oil Dependent Equity-Sector Stock Returns: Evidence from Major Oil Producing Countries

In this paper, we study the effects of oil price volatility on the stock market relevant sectors from several oil producing countries. We investigate the interdependence between oil prices and sector stock indices within OPEC markets and selected major non-OPEC countries such as Russia and United States. By exploring the time-varying dynamics of oil prices and sector-stock indices on the sectoral reaction to oil price shocks we investigate how the shocks in oil prices affect the correlation dynamics of the different sectors. Our study finds that different sectors display heterogeneous dynamic correlation pattern with different oil price shocks origins in different countries. Specifically, the GARCH coefficients in several sectors, such as, industrial, energy and healthcare in some of oil-producing middle-eastern countries are not significant. In addition, the negative coefficients for some sectors in some of the countries indicate the existence of hedging opportunities for portfolio managers.

The asymmetric effect of crude oil prices on stock prices in major international financial markets

The aim of this paper is to explore the potential asymmetric impacts of positive and negative shocks in crude oil prices on stock prices in six major international financial markets which include China, Hong Kong, America, Japan, Britain, and Germany. We test for these asymmetric effects on 8 major international financial markets indices over the 2007M01–2020M03 periods. Our independent measures include the prices of Brent crude oil futures and West Texas Intermediate (WTI) futures. We use the nonlinear ARDL (NARDL) model proposed by Shin et al. (2014), which can capture both short- and long-run nonlinearities through positive and negative partial sum decompositions of the explanatory variables. This research finds that positive and negative fluctuations of oil price have asymmetric effects on stock price index in four financial markets, but the performance of the asymmetry is different. Specifically, the impacts of volatility in oil prices on two indices of Chinese stock prices are different, and the asymmetric effects of oil price volatility on stock price indices in China and other financial markets are significantly different.

Modeling Fluctuation of the Price of Crude Oil in Nigeria Using ARCH, ARCH-M Models

As a mono-product economy, where the main export commodity is crude oil, volatility in oil prices has implications for the Nigerian economy and, in particular, exchange rate movements. The latter is particularly important due to the twin dilemma of being an oil exporting and oil-importing country, a situation that emerged in the last decade. The study examined the effects of oil price volatility, demand for foreign exchange, and external reserves on exchange rate volatility in Nigeria using monthly data over the period from May, 1989 to April 2019. Drawing from the works of Atoi [1] Having realized the potentials of an Autoregressive conditional heteroskedasticity (ARCH) model several studies have use it in modeling financial series. However, when using the ARCH model in determining the optimal lag length of variables the processes are very cumbersome. Therefore, often time users encounter problems of over parameterization. Thus, Rydberg (2016) argued that since large lag values are required in ARCH model therefore there is the need for additional parameters. Sequel to that, this research uses the ARCH-M to solve the challenges. The study reaffirms the direct link of demand for foreign exchange and oil price volatility with exchange rate movements and, therefore, recommends that demand for foreign exchange should be closely monitored and exchange rate should move in tandem with the volatility in crude oil prices bearing in mind that Nigeria remains an oil-dependent economy.

OIL PRICE VOLATILITY AND INFRASTRUCTURAL GROWTH: EVIDENCE FROM AN OIL- DEPENDENT ECONOMY

Since the discovery of crude oil in Nigeria in 1957, the Nigerian economy has remained a mono-product economy largely impacted by the effects of oil price volatility with its attendant adverse consequences on the nation’s revenue profile and infrastructural growth. Accordingly, this paper attempts to investigate the nexus between oil price volatility and infrastructural growth in Nigeria, utilizing cointegration and error correction modeling approach for the period 1981-2015. The data for this study were sourced from the Central Bank of Nigeria Statistical Bulletin, 2014 and 2016 editions. The results suggest that both oil price volatility and inflation rate tend to exert negative impact on infrastructural growth, while the appreciation of real exchange rate tend to trigger investment in infrastructure. Accordingly, we recommend, among others, the need to design and implement effective diversification policies with a view to raising the nation’s revenue trajectory, while strengthening local crude oil refining capacity so as to minimize the adverse consequences of such external shocks on the domestic economy.

Economic Effects of Oil Price Volatility on Developing Countries: A Case Study of an Oil Exporting Country

Nigeria’s dependence on oil revenue has been a cause for concern, especially as oil is an internationally traded commodity whose price is subject to unpredictable changes. The volatility in price of oil has various implications for both oil importing and exporting countries alike. However, oil export revenue dependent nations are more prone to the consequences, especially during periods of negative volatility. Nigeria’s economy is highly dependent on crude oil export revenue, hence, fluctuations in oil prices affects Nigeria’s macroeconomics. This study empirically investigated the economic effects of oil price volatility on Nigeria’s economy using some macroeconomic indicators such as gross domestic product (GDP), exchange rate (EXR), interest rate (INR), Foreign Direct Investment (FDI), and balance of payment (BOP). Ordinary Least Square (OLS) estimation was used to assess the impact of oil price fluctuation (independent variable) on the macroeconomic indicators listed above (dependent variables). The result of the study shows that the macroeconomic variables respond to changes in the price of oil (volatility), although at varying extent/degrees. This result underscores the contribution of oil as the major foreign revenue earner for the country. Based on the result of the study, it is concluded that oil price volatility is linearly related to the macroeconomic variables investigated, and that price volatility has an effect on interest rate, balance of payment, gross domestic product and foreign direct investment. Consequently, it is recommended that Nigerian economy should be diversified to guarantee non-dependence on oil revenue as the major source of foreign income earner, and that investment in local production to encourage export, while discouraging over importation is imperative.

OIL PRICE VOLATILITY: INDUSTRIAL PRODUCTION AND SPECIAL AGGREGATES

Previous research shows that volatility in oil prices has tended to depress output, as measured by nonresidential investment, gross domestic product, and aggregated measures of industrial production in several countries. This paper investigates the effect of oil price volatility on disaggregated measures of industrial production. The disaggregated measures that we examine are the special aggregates by market groups as calculated by the Federal Reserve Board. Our results are reported for three categories of special aggregates: indexes for industrial production excluding two major industries (technology and motor vehicles), energy-related special aggregates, and non-energy-related special aggregates. Our results indicate that among energy-related market groups, the effects of oil price volatility are concentrated in activities related to primary energy generation and oil and gas drilling. Among non-energy-related market groups, oil price volatility affects a broad range of special aggregates, including aggregates sorted by consumer goods and business equipment.