Oil Price Shocks Research Articles

Analyzing the Impact of Oil Price Shocks on the Exchange Rate Fluctuations in Pakistan

Analyzing the Impact of Oil Price Shocks on the Exchange Rate Fluctuations in Pakistan

The Heterogeneous Impact of Oil Price Shocks on Traditional and Modern Renewable Energy in Developed and Developing Countries

The Heterogeneous Impact of Oil Price Shocks on Traditional and Modern Renewable Energy in Developed and Developing Countries

The role of real exchange rate in the trade balance between Turkey and Libya: Evidence from nonlinear and wavelet-based approaches

The time-invariable models would suffer to give a clearer description to the relationship between exchange rate and trade flows. Therefore, the growing strand of literature has failed to reach a consensus. This study aims to contribute to this discussion by employing not only nonlinear model to capture the asymmetric effect, but also to detect the time frequencies and explore the lead-lag relations between real exchange rate and trade balance between Libya and its major trade partner ‘Turkey’ by applying both NARDL and wavelet coherence approaches, using monthly data spanning January 2013 to December 2020, selected based on data availability. The findings disclose that trade balance responds to the real exchange rate asymmetrically. The asymmetric effect is skewed more in the negative direction, as the impact of negative change is significant and greater than the positive change in long run. While the oil price shocks positively impact trade balance, economic policy uncertainty negatively affects trade balance. The wavelet coherence analysis indicates that real exchange rate and economic policy uncertainty are lagging in trade balance, while oil price leads trade balance. Among various other policy suggestions, we recommend that stable exchange rate through the intervention in the foreign exchange market will promote the trade balance at the end.

Analysing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa

Objective – The aim of this paper is to examine the relationship between the CPI, the brent crude oil price, and the PPI for final manufactured goods as well as the Rand/Dollar exchange rate during the past year. The study used South Africa as a proxy for developed countries. The objective is, therefore, to evaluate the effects of the increase in commodity prices on inflation and other macroeconomic variables. Methodology –The study utilised a quantitative methodological approach through the assessment of an econometric model that employed monthly data from January 2017 to May 2022. The paper utilized variables such as CPI, brent crude oil prices, PPI for final manufactured goods as well as the Rand/Dollar exchange rate. Findings – Short- and long-run relationships were established between the variables using the vector error correction model (VECM) and the Johansen co-integration equation methods. The long-run conclusions showed that high brent crude oil prices, high sunflower oil, a depreciating exchange rate and increasingly high PPI levels will lead to an increase in the CPI (Inflation). The results also indicated that oil prices still influence the basic prices of goods and services since all things need to be transported. Novelty – The results of the study showed that a perpetual international and national macro-economic environment is crucial to prevent inflationary pressures and price shocks, while volatile exchange rates unsteady PPI’s and significantly high oil and commodity prices causes cost-push inflation. Policy certainty and political stability is important to keep inflation stable and economic growth positive, which could lead to a more self-sufficient economy which are is reliant on political instability as an obstacle for positive future economic growth. Type of Paper: Empirical JEL Classification: E31, E37, E60, E63 Keywords: Russian-Ukrainian conflict, economic growth, Brent crude oil prices, PPI, CPI, exchange rates, sunflower oil. Reference to this paper should be made as follows: Neethling, J.R; Wyk, A.S.V. (2022). Analysing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa, J. Bus. Econ. Review, 7(3), 178–193. https://doi.org/10.35609/jber.2022.7.3(3)

Analyzing the rising oil price shock driven by Russia-Ukrainian tensions - effect on inflationary pressure in South Africa

At the onset of 2022 the Russian Federation occupied Ukraine in a major intensification of the Russo-Ukrainian War that instigated in 2014. The result of the Russians invasion in Ukraine caused a major intensification in the inflationary levels and weakened global economic growth. As a result of the conflict the Brent Crude Oil prices increased from $92.98 per ounce on 24 February to $122.43 per ounce on the 8th of June 2022 which is an increase of 31.67 per cent in less than 4 months. The result of this invasion reformed the macroeconomic environment which fundamentally affected the international commodity markets and consequently leading to insufficient financial linkages between Russia and the rest of the World. The aim of this paper is to examine the relationship between the CPI, the brent crude oil price, the PPI for final manufactured good as well as the Rand/Dollar exchange rate. The study used South Africa as a proxy for developed countries. A quantitative methodology was used through the estimation of an econometric model by utilizing monthly time series data from January 2017 to May 2022. The CPI was chosen as the dependent variable while the independent variables included the PPI, sunflower oil, Rand/Dollar exchange rate and the brent crude oil. Short- and long-run relationships were established between the variables using the vector error correction model (VECM) and the Johansen co-integration equation methods. The long run conclusions showed that high brent crude oil prices, high sunflower oil, a depreciating exchange rate and increasingly high PPI levels will lead to an increase in the CPI (Inflation). In conclusion, the results of the study showed that a perpetual international and national macro-economic environment is crucial to prevent inflationary pressures and price shocks, while volatile exchange rates unsteady PPI's and significantly high oil and commodity prices causes cost-push inflation. Policy certainty and political stability is important to keep inflation stable and economic growth positive, which could lead to a more self-sufficient economy which are not reliant on political instability as an obstacle for positive future economic growth. Keywords: Russian-Ukrainian conflict, economic growth, Brent crude oil prices, PPI, CPI, exchange rates, sunflower oil.

Crude Oil Price, Monetary Policy and Output: The Case of Pakistan

Rapid rises in the prices of crude oil in the decade of 2000s have raised concerns among policy-makers around the world, as the theoretical and empirical literature has established that oil price shocks may have an adverse impact on the macro economy of the country. In particular, for the oil importing developing countries like Pakistan, this upward trend in the price of oil can have serious repercussions in terms of creating inflationary pressures in the economy, increasing budget deficit and balance of payment problems, and thus affecting the GDP growth. Pakistan was on the path of rising GDP growth in the first seven years of this decade. But in the year 2007-08, the situation has changed. This oil price shock could possibly be one of the reasons. As an impact of rising growth rate of GDP, demand for energy has also gone up rapidly in this period. In the energy mix for the year 2005-06, oil accounts for 32 percent of the total energy used in Pakistan, and it is the second largest source of energy used after natural gas, which accounts for 39 percent. With oil being the second largest source of energy used along with almost constant rate of its production Pakistan is heavily dependent on oil imports from Middle East exporters (Saudi Arab playing the lead role). Almost 82 percent of the demand for petroleum products in the country is met through imports.1 Pakistan spent about 44 percent of export earnings on oil imports in 2006-07. This percentage was only 27 percent in 2004-05. Therefore, the international oil price increase has a direct impact on the macro economy of the country, especially on the oil price GDP relationship. The share of net oil imports in GDP is an indicator of the relative importance of the oil price rise to the economy in terms of the potential adjustments needed to offset it. For Pakistan over the last few years, this ratio has risen from 3.13 in 1990-91 to -5.24 in 2005-06 [Malik (2007)]. With such a high ratio, unless country is running in surplus, or has extremely large foreign exchange reserves, high oil price is dealt by severe macro economic adjustments.

Asymmetric relationship between oil prices and remittances in oil‐importing and ‐exporting countries: Evidence from sub‐Saharan Africa

AbstractThis study investigated the asymmetric impact of oil price on remittances in oil‐exporting and ‐importing nations in sub‐Saharan Africa (SSA). The study adopted the nonlinear autoregressive distributed lag (NARDL) technique for 22 SSA countries. The study found that in oil‐importing countries, positive shocks in oil prices boost the influx of remittances, whereas a fall in oil prices reduces remittances. For oil‐exporting nations, the result indicates that the influence of a positive shock in oil price on remittances, in the long‐run, is sensitive to the measure of oil price (Brent and West Texas Intermediate). However, in the short‐run, adverse oil price shocks decrease the inflow of oil‐importing nations' remittances while it enhances the inflow of remittances into oil‐exporting nations. Based on these findings, the study recommends that oil‐importing nations use the increase in remittances to promote economic activities to lessen the adverse effect of an upsurge in international oil prices. By contrast, oil‐exporting nations need to use the rise in oil revenue to cushion the decrease in remittances due to oil price shock.

A Note on Oil Price Shocks

Many empirical studies have examined the role of oil price fluctuations on macroeconomic activities [...]

Oil prices and gold prices on housing market in China: novel findings from the bootstrap approach

PurposeThis study aims to assess how real income, oil prices and gold prices affect housing prices in China from 2010 to 2021.Design/methodology/approachThis study uses a novel bootstrap autoregressive distributed lag (ARDL) testing to empirically analyze the short and long links among the tested variables.FindingsThe ARDL estimations demonstrate a positive impact of oil price shocks and real income on housing market prices in both the phrases of the short and long run. Furthermore, the results reveal that gold price shocks negatively affect housing prices both in the short and long run. The result can be attributed to China’s housing market and advanced infrastructure, resulting in a drop in housing prices as gold prices increase. Additionally, the prediction of housing market prices will provide a base and direction for housing market investors to forecast housing prices and avoid losses.Originality/valueTo the best of the authors’ knowledge, this is the first attempt to analyze the effect of gold price shocks on housing market prices in China.

Oil Price Shocks to Foreign Assets and Liabilities in Saudi Arabia under Pegged Exchange Rate

The Saudi economy ought to maintain a significant amount of foreign exchange reserves due to the pegged exchange rate regime. As a hydrocarbon economy, we measure the dynamic response of external assets and liabilities of banks to the international oil price in Saudi Arabia. In the presence of extreme observations, we apply sophisticated frameworks, including cross-quantilograms, quantile-on-quantile and TVP-VAR approaches, to analyze weekly time-series data from 1993 to 2021. Our results from the cross-quantilogram and quantile-on-quantile frameworks demonstrate that foreign assets and liabilities responded asymmetrically to the volatilities of international oil prices under the bullish and bearish states of the market over different memories. The TVP-VAR results indicate that, during the COVID-19 pandemic, the Saudi economy encountered negative net foreign assets, which occurred mainly as a significant plague of international oil prices. Our findings are robust under different estimators.

Dynamic path through of oil price shocks into inflation in Iran: application of Markov switching and TVP-VAR models

PurposeThe main purpose of this paper is to investigate the dynamic effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2Design/methodology/approachThe main purpose of this paper is to investigate the dynamic effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2 using the time-varying parameter vector autoregressive (TVP-VAR) model. The dynamics of the results enable us to study the amount and severity of the impact of the oil price shocks on inflation with the distinction of the sanctioned and non-sanctioned periods. The volume of oil export is used to identify the effective oil sanctions. The period is divided into sanctioned and non-sanctioned periods by Markov switching model.FindingsThe results show that the pass-through of oil price shocks into Iran’s inflation are time-varying, and there are significant differences at sanction period from other time horizons. An increase in oil price has a positive effect on inflation and its effects are stronger during the sanctions period. It is also observed that the producer price index is more sensitive to changes in the oil price than the consumer price index. The necessity of the government’s earnest efforts to improve international relations to lift the sanctions, along with diversification of exports, and making the economy of Iran independent of oil revenues is obvious.Originality/valueIn addition to the exogenous oil price shocks, Iran’s economy faces numerous restrictions for its oil exports due to the sanctions. The main purpose of this paper is to investigate the dynamics effects of the oil price shocks on Iran’s inflation in the period 1993:2–2018:2 using the time-varying parameter vector autoregressive (TVP-VAR) model. The dynamics of the results enable us to study the amount and severity of the impact of the oil price shocks on inflation with the distinction of the sanctioned and non-sanctioned periods. The volume of oil export is used to identify the effective oil sanctions.

Green bonds and oil price shocks and uncertainty: A safe haven analysis

This paper investigates the hedge and safe-haven properties of green bonds (GBs) performing as a safeguard against oil price shocks and uncertainty, in comparison to the corresponding roles of gold, the 3-month European government bills and the U.S. 3-Month T. bills. Oil price shocks are disentangled into oil supply, oil demand, and oil risk shocks based on the recent methodology of Ready (2018) , generated in a framework that includes gold, oil shocks, and oil uncertainty (OVX). The ability of GBs to protect against oil price shocks and oil uncertainty is examined, using the GARCH and quantile regression (QR) models. The results show that GBs are more appropriate than gold and conventional bonds (CBs) as hedging and safe haven tools against oil price shocks and oil uncertainty. Besides, the ability of GBs to protect against oil price shocks and uncertainty depends on whether the oil shocks are supply, demand, or risk shocks. Furthermore, we find that GBs serve as a strong hedge and/or a safe haven against structural oil shocks generally under the bearish GBs market conditions. The European government bills and the US T. bills play the role of weak hedge and a safe haven asset against the oil uncertainty and the oil shocks. This role varies across quantiles (bear and bull market conditions). Relevant risk management implications are discussed.

The non-linear response of US state-level tradable and non-tradable inflation to oil shocks: The role of oil-dependence

This paper investigates the effects of oil supply, oil-specific consumption demand, oil inventory demand shocks, and global economic activity shocks on state-level tradable and non-tradable inflation in the US. We use oil shock data following the work of Baumeister and Hamilton (2019) and estimate both linear and non-linear impulse responses using a lag-augmented local projections model in a panel context. Our results from a linear model show that both supply and demand-side oil shocks have a statistically significant impact on both types of inflation. While supply, global economic activity, and demand shocks have a greater impact on tradable inflation, non-tradable inflation responds more strongly to inventory shocks. Further, the non-linear model results provide evidence of heterogeneity in the magnitude and persistence of impact between high- and low-oil dependence regimes. Non-tradable inflation is more sensitive to nearly all components of oil price shocks in the high-oil dependence regime.

Is refined oil price regulation a “shock absorber” for crude oil price shocks?

This paper explores whether the government's control of refined oil prices can slow down this impact and play a “shock absorber” function. Adopting the SVAR model and divides the sample into two sub-samples according to the level of price regulation, it is found that the degree of price regulation of refined oil is very high before May 2009. At this time, the price regulation seriously hinders economic growth when the oil price falls. After May 2009, the degree of refined oil price control has been greatly reduced, and price control promotes the increase in industrial investment and GDP to a certain extent when oil prices rise and fall, and plays the function of “shock absorber”. In the post epidemic era, in the face of the current geopolitical conflict, it is necessary to continue to implement refined oil price control measures in line with China's situation in the short term, and gradually release oil price control in the long run to form a market price reflecting the relationship between supply and demand. In addition, it is necessary to improve and develop China's crude oil futures market as soon as possible and establish a modern oil circulation system.

Effects of Crude Oil Price Shocks on Stock Markets and Currency Exchange Rates in the Context of Russia-Ukraine Conflict: Evidence from G7 Countries

Effects of Crude Oil Price Shocks on Stock Markets and Currency Exchange Rates in the Context of Russia-Ukraine Conflict: Evidence from G7 Countries

Unexpected economic growth and oil price shocks

Profit-maximizing oil producers base their production schedules on expected economic growth which usually has impacts on oil demand. However, in the wake of unexpected economic growth, oil price shocks can ensue, when no additional oil supply meets unexpected demand. This paper examines whether and how unexpected economic growth could explain oil price shocks. Forecasting errors of mainstream institutions which represent the global market are employed to measure unexpected economic growth and oil price shocks. We find that because the market underestimated China's economic prospects, it is not the strong economic growth but the unexpected growth that raised the oil price during 2000–2008. Afterwards, this impact was on the wane, possibly due to the enhanced accuracy in economic growth expectations for China. Lower-than-expected economic growth might lead to the decline in the real oil price after 2014. The results emphasize the role of expectation in oil price variations.

Oil market shocks and financial instability in Asian countries

This paper examines the relationship between oil market shocks and financial instability in Asian countries using a Structural Vector Autoregression (SVAR) following Kilian and Park’s (2009) methodology. Instability in the Asian financial markets is measured by the Financial Stress Index (FSI). Based on impulse response functions, the findings confirm that the source of an oil price shock (supply side or demand side) is extremely important to financial markets. When the oil price increases as a result of oil-specific demand shocks, the financial markets experience less stress. However, when the oil price increases as a result of oil-specific supply shocks, the financial markets experience increased stress. The findings of the study should be useful for international and domestic investors for portfolio diversification and other investment-production purposes, as well as for financial stability regulators, such as central bankers and other monetary authorities.

The Effects of Household Debt and Oil Price Shocks on Economic Growth in the Shadow of the Pandemic

In a sample of 34 countries during 1965Q2 to 2021Q3, this paper offers an empirical analysis of how household debt and oil price shocks influence economic growth in the shadow of the pandemic. We exploit the quarter lags inherent in the response of debt and the oil price to output to pin down the relationship between household debt, the oil price, and economic growth in an unrestricted panel VAR model. We find that household debt has a short-term positive impact on economic growth, and this impact is lagged, while oil price shocks have a negative effect on economic growth. Pandemic uncertainty has an obvious and positive effect on household debt, while it has an obvious and negative effect on economic growth and oil price. The results hold under several robustness tests.

Asymmetric behavior of oil price shocks and output performance in Africa

A comprehensive cross-country dataset is employed in this reseach to examine the impact of oil price shocks and its asymmetry on output in African oil exporting countries (AOECs). Using a panel-VAR model, the study accounted for impulse-response between output and oil price shocks. In addition, through the PVAR model, variance decomposition is performed to assess the importance of those effects and guidelines are offered for policy formation. The study revaled that oil price shocks create heterogeneously asymmetric effect on output. The study revealed the prevalence of Dutch Disease among the AOECs as apparent in the impact of negative oil price shocks on exchange rates and output. The study recommends that policies should be formulated to minimize the effect of oil price shocks on output, especially negative oil price shocks revealed to adversely affect oil revenue (policies aimed at strengthening economic activities through diversification, so as to enhance the export mix). This will reduce the AOECs’ on-going reliance on large revenues from oil, arising from positive oil price shocks which the literature has argued to have a negative and hindering impact on economy, mainly because it impacts the non-oil sector.

Asymmetric behavior of oil price shocks and output performance in Africa

A comprehensive cross-country dataset is employed in this reseach to examine the impact of oil price shocks and its asymmetry on output in African oil exporting countries (AOECs). Using a panel-VAR model, the study accounted for impulse-response between output and oil price shocks. In addition, through the PVAR model, variance decom-position is performed to assess the importance of those effects and guidelines are offered for policy formation. The study revaled that oil price shocks create heterogeneously asymmetric effect on output. The study revealed the prevalence of Dutch Disease among the AOECs as apparent in the impact of negative oil price shocks on exchange rates and output. The study recommends that policies should be formulated to minimize the effect of oil price shocks on output, especially negative oil price shocks revealed to adversely affect oil revenue (policies aimed at strengthening economic activities through diversification, so as to enhance the export mix). This will reduce the AOECs’ on-going reliance on large revenues from oil, arising from positive oil price shocks which the literature has argued to have a negative and hindering impact on economy, mainly because it impacts the non-oil sector.