Negative Oil Price Shocks Research Articles

Asymmetric pass‐through between oil and transport prices: Evidence from a nonlinear analysis

The present study focuses on a widely discussed phenomenon, Asymmetric Price Transmission, which refers to the nonlinear behavior of prices when they are evaluated at their crests and troughs. The underlying study attempts to capture this behavior, giving special emphasis to the transportation sector of Pakistan. By employing monthly data of retail oil prices spanning between 1990 and 2016, we have tried to empirically investigate the existence of this phenomenon in a sector directly linked with oil price variations. This sector has been often overlooked in terms of its evaluation within the given context. Our study employs a recently developed nonlinear autoregressive distributed lag model (NARDL), to examine the pass‐through of oil prices into the fares of the transportation sector. This model allows us to capture short‐run and long‐run estimates simultaneously and also offers an opportunity to determine the magnitude of respective positive and negative oil price shocks. In addition, this study categorizes the transport sector into subsegments of LTVs and HTVs and finds differential patterns in the response of these two categories against oil price variations. The obtained results indicate that oil prices affect the fares of the transportation sector asymmetrically. The findings of the study are instrumental for identifying the pass‐through of oil prices to the subsegments of transport sectors. This identification about the differential impact/pass upon the various segments of the transport sector can be helpful for policymakers, especially if they are concerned about devising a trickle‐down policy in periods of oil price decline.

The nexus between oil price and stock market: Evidence from South Asia

We examine the interactive link between oil prices and the stock market in the 4 selected South Asian countries using a Nonlinear Autoregressive Distributed Lag (NARDL) model for 1997–2018. We find a positive relationship between the world oil price and stock market index, and the response of the stock market index to positive and negative oil price shocks is asymmetric. Our results further reveal that higher oil prices in the world market stimulate stock price, suggesting that the South Asian countries do not follow the Efficient Market Hypothesis (EMH). We recommend that the policymakers take initiatives to make the South Asian stock market more efficient by removing the barriers to stock market development, developing the country’s infrastructure, enhancing the stock market’s capacity, and restoring the confidence of the market participants within the region.

Oil price shocks, exchange rate and macroeconomic fluctuations in a small oil-exporting economy

This study investigates the macroeconomic effects of adverse oil price shocks on a small oil-exporting economy — the Azerbaijan economy. We estimate a recursive (near) VAR model by using monthly macroeconomic data from 2006 to 2018. The results indicate the Azerbaijan economy is adversely influenced by an oil price decline. Specifically, we find that a negative oil price shock deteriorates trade balance, causes a currency depreciation, increases inflation and falls economic activity. Furthermore, our findings imply that the oil price-led devaluation shapes the inflationary and recessionary consequences of this shock.

Asymmetric effect of oil prices on stock market prices: New evidence from oil-exporting and oil-importing countries

This paper examines the short-run and long-run effect of oil prices across bullish, bearish, and normal states of the stock markets in oil-exporting and oil-importing countries where oil-exporting countries include Russia, Mexico, Venezuela, and Norway and oil-importing countries include India, China, Japan and Norway. For this purpose, we use quantile ARDL model and compare its findings with the standard nonlinear ARDL model. Moreover, this study uses quantile nonlinear ARDL model where oil price series is decomposed into positive and negative oil price shocks. The nonlinear ARDL estimates do not support co-integration in the long-run whereas, in the short-run, it supports asymmetric effect in all countries except Norway. Besides, the quantile ARDL estimates indicate that oil prices asymmetrically affect stock prices both in the short-run and long-run and for all sample countries. Finally, the empirical estimates of the quantile nonlinear ARDL model are consistent with the estimates from the quantile ARDL model. The findings of this study provide important policy implications for investors, policymakers and other stakeholders.

Are the responses of output and investment to oil price shocks asymmetric?: The case of an oil-importing small open economy

In this paper, we investigate whether there are asymmetric effects of oil price changes on GDP, industrial production and investment in Turkey for the period between 1998:q1 and 2019:q2 applying the methodology advanced by Kilian and Vigfusson (Quant Econ 2(3):419–453, 2011a). Based on the results of the slope-based tests, we cannot find significant evidence against the null of symmetry in the effects of oil price shocks on real GDP growth, industrial production growth and investment. Next, we concentrate on the impulse response-based tests which allow us to examine the issue of asymmetry of the impulse response functions directly. Overall, both the results of the impulse response-based symmetry tests and the impulse response analysis present significant evidence confirming the asymmetry in the responses to real oil price shocks. That is, our findings show that the responses of all macroeconomic aggregates to positive oil price shocks are considerably greater than those of to negative oil price shocks, especially at short horizons. Moreover, the asymmetry seems to be more apparent in the responses of investment and industrial production growth. Our study also emphasizes the importance of using an appropriate model to analyze the underlying relations.

The impact of declining oil rents on tax revenues: Does the shadow economy matter?

Abstract We study the association between oil rents and tax revenues, highlighting the importance of the shadow economy (SE) as a moderating factor in this relationship. Declining oil rents may not lead to higher tax efforts in a state if the SE is sizable. Using a sample of 124 countries from 1991 to 2015, our panel data regression analysis illustrates the moderating role of the SE in the final effect of negative oil rent shocks on tax revenues. A decline in oil rents following negative oil price shocks ceases to have any significant positive impact on tax revenues in countries with an SE representing more than 35% of gross domestic product. The results are robust after controlling for country- and year-fixed effects, other determinants of tax revenues, and using a dynamic model.

Oil price uncertainty and U.S. employment growth

This paper studies the effects of oil price changes on U.S. aggregate and sectoral employment growth in the presence of time-varying oil price uncertainty. We estimate a bivariate GARCH-in-Mean VAR model using U.S. monthly data of oil prices and employment growth for the period 1974 m2:2018 m11. Based on the results, we show that an increase in oil prices reduces total employment growth and that in most private sectors, but the public sector is largely unaffected. The effects on employment growth in various ”hub” sectors are also different. Furthermore, employment growths at both aggregate and disaggregate levels respond asymmetrically to positive and negative oil price shocks, which could possibly be attributed to oil price uncertainty. This asymmetric impact is more evident when the model is estimated on the entire sample than on the 1970s sample, implying that the role of oil price uncertainty in accounting for variations in employment growth can differ over time. These findings underline the empirical relevance of oil price uncertainty for the U.S. labor market dynamics. • A theoretical model is developed to illustrate the relation between oil price uncertainty and employment. • A GARCH-in-mean-VAR model is estimated to empirically explore the effects of oil price changes on U.S. employment growth. • Oil price shocks have negative impact on employment growth in most sectors, but the public sector is largely unaffected. • Employment growth responds asymmetrically to oil price shocks, possibly attributed to oil price uncertainty.

Do financial development drive remittances? Empirical evidence from India

Remittances being a stable inflow of foreign currency, account for a substantial part of India's Balance of Payment account. In several developing countries, remittances exceed the receipts from the export of goods and services, and even capital flows such as Foreign Institutional Investment, Foreign Direct Investment, and Official Development Assistance. Remittances are known for their countercyclical nature during the sharp economic downturns, compared to other financial flows that are typically procyclical. Hence, it is known as a possible financing source for economic evolution in emerging economic systems. It is essential to determine the elements that drive remittances, as it may enable us to channelize this inflow to reap its developmental potential efficiently. Several macroeconomic determinants of remittances are well researched in the literature by researchers around the globe. However, not even a single study has been given to the financial development, determinants of remittances in the Indian setting. Therefore, this survey is a humble effort to bridge this gap. We utilize multiple regression and autoregressive distributed lag approach to cointegration which finds that several financial developments and financial openness variables have a substantial impact on remittances in the short run as well as in the long run. In accession to that, we incorporate each dummy variable for the global financial crisis and the concurrent negative oil price shock and negative output shock in the host nations. Remittances are found to be resilient during the crisis period while being adversely affected by the adverse economic shocks in the host nations.

EXPLORING THE INFLATIONARY EFFECT OF OIL PRICE VOLATILITY IN AFRICA’S OIL EXPORTING COUNTRIES

A range of explanations had been offered for the apparent change in oil price-inflation relationship outcomes ranging from the possible use of alternate energy sources, change in the structure of output regarding fewer oil intensive sectors and the role of fiscal and monetary in the affected oil-exporting countries. These changes had drawn the attention of stakeholders, government and the society at large to the anecdotal relationship among oil price volatility, inflation, and output in Africa oil-exporting countries. This study leans empirical credence to the impact of oil price volatility on inflation and economic performance in the Africa oil-exporting countries from 1995 through 2017. We employed the Pool Mean Group estimation procedure with the inference drawn at a 5% level of significance. We found that oil price volatility had a negative and significant effect on inflation in Africa oil-exporting countries. The study concluded that oil price volatility had a substantial impact on inflation in the Africa oil-exporting countries. The study, therefore, recommended that Africa oil-exporting countries should adopt precautionary measures to monitor inflation potentials due to different responses of inflation to positive and negative oil price shocks.

Asimetrik Döviz Kuru Dalgalanmaları ve Petrol Fiyat Şokları Nijerya’nın Büyümesinde Önemli Midir? Doğrusal Olmayan ARDL Analizinden Bulgular

This paper examines the nexus between exchange rate fluctuations, oil price shocks, and growth in Nigeria, considering misspecification issues, endogeneity bias, and small sample size, which have not received adequate attention. Using a non-linear ARDL model, findings show that accounting for oil price and exchange rate asymmetries is important in explaining growth in the country for the period 1981-2016. The results also indicate that in the long-run, an exchange rate depreciation has a significant positive impact on growth. A negative oil price shock exerts a positive long-run effect on growth while higher oil prices have a negative impact. The oil price impact not only validates the Dutch disease hypothesis, but also reflects the government’s limited fiscal buffers and savings over time. Contemporaneously, oil price shocks affect growth distinctly as high oil prices boost growth while negative shocks retrogress productivity. While the impact of currency depreciation on growth was found to be positive, an appreciation hurt growth in the short term. The findings reinforce the need for the government to urgently minimize the country’s vulnerability to global crude oil markets as well as dependence on imports to stabilize the Nigerian Naira/ US dollar exchange rate.

Civil society, natural resources and dictatorship

ABSTRACT Resource-rich dictatorships are more inclined to repress civil society than others. In this paper, we analyze the collapse and persistence of authoritarian regimes in terms of oil price shocks and the organizational density of civil society. This organizational density indicates the ability of citizens to credibly threaten the dictator with a revolution and therefore induce regime change. In the civil society protest game, regime change becomes likely in the occurrence of a negative oil price shock, whereas a positive oil shock increases the extractive capacity of the dictator, thus preserving the authoritarian status quo. In the civil society persecution game, repression of failed revolutionaries can avert revolution if a negative oil price shock occurs and the organizational density of civil society is low ex-ante. Historical and contemporary illustrations are drawn from Iran and Russia, respectively.

The impact of the recent oil price decline on the GCC banking system

ABSTRACT This paper applies the econometric Chow test to determine the impact of the recent oil price decline on the GCC banking system for the period 2011–2017. Structural breaks in the performance of selected sample GCC banks, Saudi, UAE, and Qatar banks, are tested upon the occurrence of the recent oil price decline in 2014 for different aspects of bank performance: profitability, liquidity, credit quality, and capitalization. While Qatar banks are found to be resilient showing continuous performance over time, the Saudi banks are found to be significantly impacted by the decline experiencing negative structural breaks at the credit quality level but positive breaks at the capitalization level. However, UAE banks are found to have experienced negative breaks at the profitability, credit quality, and capitalization levels. The paper provides GCC banks with valuable insights about what bank aspects could be negatively impacted in the event of negative oil price shocks and what aspects could help mitigate the impact. This helps banks introduce necessary changes and preventive actions to better absorb future shocks.

Oil Price Shocks, Fuel Subsidies and Macroeconomic (In)stability in Nigeria

This paper studies the macroeconomic implications of oil price shocks and the extant fuel subsidy regime for Nigeria. To do this, we develop and estimate a New-Keynesian DSGE model that accounts for pass-through effect of international oil price into the retail price of fuel. Our results show that oil price shocks generate significant and persistent impacts on output, accounting for about 22 percent of its variations up to the fourth year. Under our benchmark model (i.e. with fuel subsidies), we show that a negative oil price shock contracts aggregate GDP, boosts non-oil GDP, increases headline inflation, and depreciates the exchange rate. However, results generated under the model without fuel subsidies indicate that the contractionary effect of a negative oil price shock on aggregate GDP is moderated, headline inflation decreases, while the exchange rate depreciates more in the short-run. Counterfactual simulations also reveal that fuel subsidy removal leads to higher macroeconomic instabilities and generates non-trivial implications for the response of monetary policy to an oil price shock. Thus, this study cautions that a successful fuel subsidy reform must necessarily encompass the deployment of well-targeted safety nets as well as the evolution of sustainable adjustment mechanisms.

Oil Price Asymmetry and Sectoral Output in Nigeria

Disaggregating the Nigerian economy into oil and non-oil sector, this study investigates the asymmetric effects of oil price on sectoral output in Nigeria using data spanning the period between 1981 and 2017. It adopts the novel Nonlinear Autoregressive Distributed Lag (NARDL) model developed by Shin et al. (2014) in which short-run and long-run nonlinearities are introduced via positive and negative partial sum decompositions of oil price. The Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) unit root test results show that the variables used in this study are a combination of I(0) and I(1) series thus justifying the use of the Bounds test approach to cointegration whose result was in the affirmative. The results of the short-run and long-run NARDL models showed that oil price has asymmetric effects on the performance of the oil and non-oil sector of the Nigerian economy in the short-run but only have long-run asymmetric effects on the non-oil sector. In addition, the results revealed that oil price shocks (positive and negative) have positive effects on non-oil output while a positive and negative oil price shock have corresponding effects on oil output in the short run. Moreover, oil price shocks have more effects on the oil sector than the non-oil sector. Hence, this study recommends that the Nigerian economy be diversified to help cushion the effects of the uncertainties associated with the global oil market and to adopt structural reforms in the non-oil tradable sector to stimulate sustainable growth of the economy.

Oil Price Shocks, Fuel Subsidies and Macroeconomic (In)stability in Nigeria

This paper studies the macroeconomic implications of oil price shocks and the extant fuel subsidy regime for Nigeria. To do this, we develop and estimate a New-Keynesian DSGE model that accounts for pass-through effect of international oil price into the retail price of fuel. Our results show that oil price shocks generate significant and persistent impacts on output, accounting for about 22 percent of its variations up to the fourth year. Under our benchmark model (i.e. with fuel subsidies), we show that a negative oil price shock contracts aggregate GDP, boosts non-oil GDP, increases headline inflation, and depreciates the exchange rate. However, results generated under the model without fuel subsidies indicate that the contractionary effect of a negative oil price shock on aggregate GDP is moderated, headline inflation decreases, while the exchange rate depreciates more in the short-run. Counterfactual simulations also reveal that fuel subsidy removal leads to higher macroeconomic instabilities and generates non-trivial implications for the response of monetary policy to an oil price shock. Thus, this study cautions that a successful fuel subsidy reform must necessarily encompass the deployment of well-targeted safety nets as well as the evolution of sustainable adjustment mechanisms.

An Estimated Bayesian DSGE Model for Kazakhstan

A small scale open economy model is estimated for Kazakhstan via Bayesian methods. The model explicitly takes into account the dependence of the economy on commodity exports and also accounts for risk premium shocks in the foreign exchange market. The main contribution of the research is that it is the first DSGE model in literature estimated via Bayesian methods for Kazakhstan. The results of the model are used to determine the historical contribution of structural shocks to endogenous variables, forecast error variance decomposition of observed macroeconomic variables and impulse responses of important endogenous variables to various shocks. It has been found that the output gap turned significantly negative during the Great Recession and the negative oil price shock. The effect of contractionary monetary policy is found to be negative on output gap, but it negligibly affects the inflation rate in the economy. Risk premium shocks are found to account for almost 60% of forecast error variance decomposition of nominal exchange rate of tenge over all horizons.

Oil Price Shocks, Protest and the Shadow Economy: Is there a Mitigation Effect?

In this paper, we study the impact of exogenous variations of international oil prices on the incidence of protest, while exploring the role of the shadow economy as a mitigating factor. We find that oil price shocks are negatively associated with protests, but the effect is less severe the higher the initial size of the shadow economy. To explain these results, we show that the size of the shadow economy responds counter-cyclically to oil-price-driven income shocks. In particular, we find that the decline in the GDP per capita growth following a negative oil price shock leads to an increase in the size of the shadow economy. This suggest that the shadow economy’s capacity to absorb persistent oil price fluctuations without provoking political unrest, should regard it as a mitigation tool rather than an economic burden.

Did U.S. Consumers Respond to the 2014-2015 Oil Price Shock? Evidence from the Consumer Expenditure Survey

The impact of oil price shocks on the U.S. economy is a topic of considerable debate. In this paper, we examine the response of U.S. consumers to the 2014-2015 negative oil price shock using representative survey data from the Consumer Expenditure Survey. We propose a difference-in-difference identification strategy based on two factors, vehicle ownership and gasoline reliance, which generate variation in exposure to oil price shocks across consumers. Our findings suggest that exposed consumers significantly increased their spending relative to non-ex-posed consumers when oil prices fell, and that the average marginal propensity to consume (MPC) out of gasoline savings was above 1. Across products, we find that consumers increased spending especially on transportation goods and non-essential items.

The Impact of Declining Oil Rents on Tax Revenues: Does the Shadow Economy Matter?

We study the association between oil rents and tax revenues, highlighting the importance of the shadow economy as a mediating factor. We present a simple theoretical model demonstrating that decreasing oil rents are likely to be positively associated with the tax revenues in a country with a moderate size of shadow economy. Declining oil rents may not lead to higher tax efforts of the state if the shadow economy is sizable. Using a sample of 124 countries from 1991 to 2015, our panel data regression analysis illustrates the moderating role of the shadow economy in the final effect of negative oil rents shocks on the tax revenues. A decline in oil rents following negative oil price shocks cease to have any significant positive impact on tax revenues in countries with shadow economy representing more than 35% of GDP. The results are robust after controlling country and year fixed effects, other determinants of tax revenues and using a dynamic model.

The impact of oil price shocks on stock exchanges in Caspian Basin countries

In this work, the impact of oil price shocks on the stock exchanges of three countries in the Caspian Basin − Iran, Kazakhstan and Russia − was examined through a structural vector autoregression (SVAR) model. For the research, monthly data from the stock exchanges, the oil price, inflation, industrial production and exchange rates were collected between March 2005 and June 2018. According to the results of variance decomposition, in these three countries, the impact of negative oil price shocks on the stock exchanges was stronger than that of positive shocks, and constituted the largest source of changes in the three stock exchanges. In addition, according to the results of impulse response functions, the response of the stock exchanges in the three countries to negative oil shocks was highly significant. Consequently, these countries should avoid macroeconomic imbalances and falls in their stock exchanges due to the negative impact of the oil price, and should instead focus on industrial production that will contribute to exports. In this way, they can avoid the negative impact of oil price shocks on their stock exchanges.