Oil Shocks Research Articles

The Asymmetric Impact of the Oil Price and Disaggregate Shocks on Economic Policy Uncertainty: Evidence From China

This study attempts to investigate the asymmetric impacts of oil price and component shocks on categorical economic policy uncertainties (EPUs) in China. A novel multiple thresholds nonlinear autoregressive distributed lagged model (ARDL) was employed to capture the asymmetric impacts of oil price and shocks on EPUs in the short and long run. Additionally, the influence of the Brent oil price on integral EPU was also examined. We find that asymmetric impact is more remarkable in the long run in China. Among the four categorical EPUs, trade policy uncertainty is the most notable in most cases. Based on the results, some implications are provided to policymakers and investors.

Oil price shocks and exchange rate dynamics: Evidence from decomposed and partial connectedness measures for oil importing and exporting economies

This paper introduces a novel framework of partial connectedness measures to investigate contagion dynamics between different types of oil price shocks and exchange rates. Oil price shocks are persistent net transmitters of shocks within the network. It is found that the oil shock net spillovers made up most of the net connectedness values in most countries during the pre-COVID-19 period. Both oil exporters and oil importers, without any exception, were all net receivers of shocks. However, during the COVID-19 era, there were significant differences within the groups of countries. It is also observed that the oil-risk shock transmits to the other two types of oil shocks in the pre-COVID-19 and during the COVID-19 periods. The results may have potential implications for traders.

Bank loans and bond prices

We test whether bank loans change public bond yields. A 25% increase in bank debt raises bond yields by 8 bps, reflecting a trade-off between the benefits of bank cross-monitoring and higher bond risk. This effect is smaller for firms with no credit default swaps (CDSs) and with junk debt—scenarios where bank monitoring is most valuable. It is unlikely that firms with bank debt are riskier, because they are less likely to be downgraded and have lower loan spreads. We find similar results using a natural experiment around the 2014 oil shock. Our results highlight how bond yields depend on incentive conflicts among creditors.

Time-Varying Relation between Oil Shocks and European Stock Market Returns

This paper considers a time-varying parameter vector autoregression model to analyze the varying impact of three types of structural oil shocks (the supply-side shock, the aggregate demand shock, and the oil-specific demand shock) on the European stock market since the 1990s. Our findings show that the three types of oil shocks heterogeneously influence stock market returns in the euro area, and that this influence considerably changes over time during the period considered. First, an unexpected increase in oil supply appears to exert a positive but generally declining effect in the period before the Global Financial Crisis (GFC) of 2007–2009, which descends into negative values after the GFC. Second, an unanticipated increase in aggregate demand triggers a generally positive effect on stock market returns in the euro area. However, in the period from 2003 to 2005, stock market returns responded negatively, which could be attributed to the so-called growth-retarding effect. Third, an unexpected increase in oil-specific demand instigates a negative response in the pre-GFC period (considering the response 4–5 months after the shock), although this changes to a positive effect thereafter. Interestingly, irrespective of the origin of oil price fluctuations, oil price increases are associated with positive European stock market returns after the GFC. This signals a greater degree of oil market financialization.

Influence of oil price fluctuations on the network connectedness between oil, GCC Islamic and conventional financial markets

PurposeThis paper aims to examine the dynamic spillover effects and network connectedness between the oil prices and the Islamic and conventional financial markets in the Gulf Cooperation Council countries. The focus is on network connectedness during the 2008–2009 global financial crisis, the 2014–2016 oil crisis and the COVID-19 pandemic. The authors use daily data covering the period from January 1, 2007 to April 14, 2022.Design/methodology/approachThis study applies a spillover analysis and connectedness network to investigate the risk contagion among the Islamic and conventional stock–bond markets. The authors rely on Diebold and Yilmaz’s (2012, 2014) methodology to construct network-associated measures.FindingsThe results suggest that overall connectedness among financial market uncertainties increased during the global financial crisis, the oil price collapse of 2014–2016 and the COVID-19 crisis. In addition, the authors show that the contribution of oil shocks to the financial system is limited, as the oil market was a net receiver during the 2014 oil shock and the COVID-19 crisis. On the other hand, the Islamic and conventional stock markets are extensive sources of network effects on the oil market and Islamic and conventional bond markets. Furthermore, the authors found that the Sukuk market was significantly affected by the COVID-19 pandemic, whereas the conventional and Islamic stock markets were the highest transmitters of shocks during the COVID-19 pandemic outbreak. Moreover, oil revealed a weak connectedness with the Islamic and conventional stock markets during the COVID-19 health crisis, implying that it helps provide diversification benefits for international portfolio investors.Originality/valueThis study contributes to this field by improving the understanding of the effect of fluctuations in oil prices on the dynamics of the volatility connection between oil and Islamic and conventional financial markets during times of stress through a network connectedness framework. The main results of this study highlight the role of oil in portfolio allocation and risk minimization when investing in Islamic and conventional assets.

Energy Economics after the Oil Shock in America and West Germany: The Rise of Ecological Modernization

Energy Economics after the Oil Shock in America and West Germany: The Rise of Ecological Modernization

Investigate the Real Effective Exchange Rate Misalignment in OPEC Member Countries

The effective real exchange rate is one of the variables that can Misalignment from equilibrium values, Performance affects macroeconomic indicators and creates an unstable and uncertain environment in the economy. Therefore, in order to investigate the factors affecting the real effective exchange rate Misalignment in OPEC member countries during the period 1980-1980, first, in the framework of the least dynamic ordinary squares method (DOLS), the effective factors for determining the effective equilibrium effective exchange rate have been investigated and the results confirm the estimation of the positive effects of oil shocks on the intensification of exchange rate Misalignment. Then, the effect of institutional quality indicators and financial development index on exchange rate Misalignment is investigated using the generalized panel method (GMM). The results of estimation at this stage indicate that the financial development index has a positive impact and institutional quality indicators, including; The stability of the state (rule of law), the ability to account democratically (democracy), social and economic conditions (political rights and civil liberties) have had a significant negative effect on the real effective exchange rate Misalignment. Therefore, programs and policies in the countries under study should focus on improving the quality of market regulation, government accountability for its performance, and ensuring political and economic stability.

The impact of oil shocks from different sources on China's clean energy metal stocks: An analysis of spillover effects based on a time-varying perspective

In order to examine the impact of oil shocks from different sources on clean energy metals in China. This paper first obtains different sources of oil shocks, namely, oil supply shocks, oil demand shocks and oil risk shocks, and then uses the TVP-VAR model to investigate the time-varying effects and point-in-time impacts of different sources of oil shocks on Chinese clean energy metal stocks. The results show that, firstly, oil shocks from different sources have time-varying and heterogeneous effects on clean energy metal stocks. Compared to other oil shocks, the impact of oil demand shocks is the largest. Due to the different status and nature of different clean energy metals, the impact of different sources of oil shocks is different. At different time points of major events, the impact of different sources of oil shocks is different. Therefore, there is a need to focus on the impact of different events.

Detrended cross-correlations analysis between oil shocks and world food prices

PurposeThis paper aims to investigate the relationship between oil price shocks and world food prices between 1974 and 2018.Design/methodology/approachThe authors use the SVAR model to disentangle the oil price into supply, aggregate demand and oil-specific demand shocks and apply the detrended cross-correlations analysis to measure the association between oil price shocks and food returns/volatility and analyze contagion effects between oil and food markets.FindingsThe results show that the correlations between oil and food prices depend on whether oil prices changes are driven by supply or demand shocks. Particularly, food returns (volatility) are positively (negatively) more dependent on the oil price changes driven by aggregate demand (oil specific demand) shocks. Further analysis dealing with contagion analysis between oil and food markets shows a contagion effect during the food crisis of 2006–2008. Oil-specific demand shocks are the main source of this phenomenon.Research limitations/implicationsThis study differentiates itself from the previous literature by simultaneously disentangling oil price into supply, aggregate demand and oil-specific demand-driven shocks and evaluating the cross-correlations between each shock type and food returns/volatility. Specifically, this study has the originality of detecting the main source of contagion effects between oil and food markets over the food crisis of 2006–2008.Practical implicationsThe results of this study are important for policymakers and investors. They should account for the oil price fluctuations differently depending on whether the oil price shocks are driven by the demand or supply side. Moreover, they should anticipate an increase (decrease) in food prices due to a positive (negative) oil shock. In addition, special attention should be accorded to the world oil demand. Finally, when a food crisis occurs, markets operators should focus more on the specific oil-demand shocks, as it is the most contributor to possible contagion effects between oil and food markets.Originality/valueThis study differentiates itself from the previous literature by simultaneously disentangling oil price into supply, aggregate demand and oil-specific demand-driven shocks and evaluating the cross-correlations between each shock type and food returns/volatility. Specifically, this study has the originality of detecting the main source of contagion effects between oil and food markets over the food crisis of 2006–2008.

Multilayer information spillover networks between oil shocks and banking sectors: Evidence from oil-rich countries

There is no doubt that oil price shocks significantly affect oil-producing countries' macroeconomic fundamentals and financial stability, mainly in crisis times. The recent oil price shocks, coupled with the COVID-19 pandemic, motivated us to investigate the connectedness and risk transmission among oil shocks and banking sectors in the Gulf Cooperation Council (GCC) economies from June 30, 2006, to September 9, 2021. Thus, we construct multilayer information spillover networks between oil price shocks and GCC banking sectors. The empirical results show that the Bahrain banking sector depicts the highest connectedness and risk transmission with oil price shocks on the extreme risk spillover layer. In addition, Kuwait and the United Arab Emirates are highly connected to oil demand shocks. Furthermore, we find a substantial increase in extreme risk spillover and volatility spillover layers during the COVID-19 period. The results of this paper have some important implications for regional portfolio risk management, alleviating systemic risk, and developing hedging and investment strategies.

Changes in the effects of oil price shocks on US industrial production

AbstractThis paper examines whether there exists a structural change in the relationship between oil shocks and US industrial production with the rapid development in oil industry due to the shale revolution. Using a structural VAR model, I identify supply and demand shocks in global crude oil markets and estimate changes in their effects on the US industrial production. The key finding is that the US industry output has become more responsive to oil price shocks since the shale oil boom. Oil supply shocks have been more important and heterogeneous effects on the industrial production depending on the US or non‐US oil supply component. There has also emerged the positive effect of oil demand shocks, stimulating aggregate economic activity. In particular, I find that there have been strong positive spillover effects from an oil price increase to other industries not only through direct purchases of inputs for oil production and investment, but also through indirect knowledge and technology transfers created during the shale revolution. These findings have profound policy implications for the fiscal and monetary authority who copes with exogenous oil shocks.

An analysis of the effects of oil and non-oil export shocks on the Saudi economy

As the world’s largest oil exporter, Saudi Arabia faces the same pressures as any other government to expand its economy. Saudi Vision 2030 is to reduce the country’s reliance on oil exports and revenues. One of the main goals of Saudi Vision 2030 is to increase the share of GDP that does not come from oil. Dynamic autoregressive distributed lag (ARDL) cointegration is used to look at how oil exports and exports of goods other than oil affect GDP growth. The results of the dynamic ARDL simulation show that there is both long-term and short-term cointegration between the variables. The dynamic ARDL simulation tests rely on the presence of cointegration to show that a 1% increase in oil exports will boost Saudi Arabia’s economic growth by about 0.48% in the long run and 0.18% in the short run, depending on the type of time frame. In the same way, the results about non-oil exports showed that an increase in non-oil exports would boost Saudi Arabia’s economic growth by 0.26 percentage points in the long run and by 0.16 percentage points in the short run. This is a good sign of Saudi Arabia’s efforts to diversify its economy away from oil exports and make room for international investors to help the country reach its Vision 2030 goals. AcknowledgmentThis study is supported via funding from Prince Sattam bin Abdulaziz University project number (PSAU/2023/R/1444).

The role of crude oil demand and supply shocks on exchange rates: empirical evidence from South Korea

ABSTRACT The primary contribution of the present paper is to explicitly take into consideration the role that the three different components of crude oil shocks – oil supply shocks, aggregate demand shocks, and oil-specific demand shocks – when studying the nexus between oil price shocks and the South Korean won (KRW). We discover that oil demand shocks have had significant impacts on KRW over the past two decades: that is, an upsurge in oil prices driven by positive shocks in aggregate demand and oil-specific demand appears to appreciate KRW. However, oil supply shocks turn out to have negligible impacts. We also unveil that two oil demand shocks seem to asymmetrically influence KRW in the short run.

The connectedness of oil shocks, green bonds, sukuks and conventional bonds

We analyze the impact of oil price shocks on three unique fixed income asset classes representing conventional bonds, Islamic bonds (sukuks) and green bonds by employing network dynamic connectedness framework. Our sample period ranges from May 1, 2009, to March 1, 2022, covering the aftermath of global financial crisis, subsequent boom and bust of oil markets and the COVID-19 pandemic. We document a sizable connectedness of oil price shocks with fixed income asset classes. We document oil demand and risk shocks' role as main transmitters of spillover. Our findings have important implications for investors, policy makers and regulators.

Macroeconomic effects of demand and supply shocks in the global oil price on the Vietnamese economy

PurposeThe purpose of this paper is to examine the effects of several structural shocks in oil prices on the Vietnamese economy and answer three key research questions: Is there a relationship between oil price shocks and macroeconomic indicators in Vietnam? How do different types of oil price impulses affect Vietnamese inflation and economic performance? To what extent do structural shocks in oil prices explain variations in Vietnam’s macroeconomic indicators?Design/methodology/approachLower triangular Cholesky decomposition is performed on a short-term impact matrix in a two-block structural vector autoregressive model. The data set is defined monthly, from January 2000 to December 2021. The contributions of structural shocks in oil prices to the domestic variances are analysed using variance decomposition methods. In this study, both forecast error variance decomposition and historical decomposition are used.FindingsThe consequences of oil price fluctuations on Vietnamese output and inflation depend on different sources of oil price shocks. In comparison, oil supply shocks have an insignificant effect on both domestic industrial output and consumer price index inflation; however, positive shocks in aggregate and precautionary oil demands increase these domestic indicators substantially and sustainably. An analysis of variance decompositions reveals that supply-side oil shocks have very limited explanatory power for variations in domestic variables. Nevertheless, the contributions of unanticipated demand-side booms to domestic variations in the past and projected forecasts are considerable.Research limitations/implicationsThe findings from this research uncover potential risks for Vietnam’s economic prospects if the consequences of oil price shocks are not managed effectively.Originality/valueGiven the lack of economic sensitivity to supply-side oil shocks and the strong response to shifts in oil demands, greater pressure on the domestic economy is likely when Vietnam increases its dependence on oil imports.

Oil and US stock market shocks: Implications for Canadian equities

AbstractOil and US stock market shocks are relevant to Canadian equities because Canada is an oil exporter exposed to market developments in the wider continent. We evaluate how the relationship between Canadian stock market indices and such external shocks change under extraordinary events. To do this, we subject statistically identified oil and S&P 500 market shocks to a surprise filter, which detects shocks with the greatest magnitude occurring over a given lookback period, and an outlier filter, which detects extrema shocks that exceed a normal range. Then, we examine how the dependence structure between shocks and Canadian equities change under the extreme surprise and outlier episodes through various co‐moment spillover tests. Our results show co‐moments beyond correlation are important in reflecting the changes occurring in the relationships between external shocks and Canadian equities in extreme events. Additionally, the differences in findings under extreme positive and negative shocks provide evidence for asymmetric spillover effects from the oil and US stock markets to Canadian equities. Moreover, the observed heterogeneity in the relationships between disaggregated Canadian equities and shocks in the crude oil and S&P 500 markets are useful to policy‐makers for revealing sector‐specific vulnerabilities and provide portfolio diversification opportunities for investors to exploit.

Oil Price Changes and Stock Market Performance in UAE: Evidence of Cointegration Persists in Economic Diversification era

The aim of this paper is to examine the linkages between stock market index, Dubai Fateh oil spot price, interest rate and FDI using monthly data on Abu Dhabi stock index for the period 2006- 2019. Vector Autoregressive Model have been employed to analyse the relationship between the variables. Using monthly data from 2006 to 2019, the results of Vector Error Correction Model (VECM) estimates suggest that there is long-run integration between oil price and monthly stock index series in which monthly oil prices have a positive impact on stock index. The Granger Causality indicates significant bidirectional causality running from ADX index, oil price and EIBOR. Meanwhile there is unidirectional causality from stock market index to FDI. Furthermore, Impulse Response Function was employed to examine market response to oil price shocks and our study reveals that UAE stock market is efficient as it responds immediately to the oil shock. These findings are relevant for investors for portfolio management and for the policymakers such that more aggressive economic diversification policies are initiated to wane the significant persistent oil-stock integration.

Supply and demand shocks in the global oil market: How much do they matter for exchange rates in OPEC members?

The current article uses the SVAR and ARDL methodologies to study the dynamic responses of exchange rates for OPEC's 13-member countries to oil supply shocks, aggregate demand shocks, and oil-specific demand shocks. We discover that the timing and the direction of the responses of the OPEC currencies appear to differ with the cause of the oil price shocks. We also reveal that the effects of the three oil shocks could be viewed as a short-run phenomenon for the OPEC currencies.

Oil Shock Impact Upon Energy Companies Investment Portfolios. Trends and Evolutions in the Energy Consumption Sector

Abstract In this article, we tackle the complex relationship between a triangle assessment: energy companies, investment portfolios, and the energy consumption sector. The first objective of this paper was to underline several important features of oil price evolution in the pandemic period, with a special focus both on the 2020 and 2022 periods, in order to reveal some aspects of new passengers’ cars registered, and some important energy sources worldwide. Second, it is highlighted several important features of energy-listed companies on the Bucharest Stock Exchange and of oil prices upon different operators. Third, we analyze important aspects of the influence of the crises regarding the energy industry and several important evolutions upon the stock market. The main findings of this study reveal the nexus between oil shock prices, the energy industry, and the stock market with an empirical focus on constructing an optimal investment portfolio’ by considering several consumption sectors. Future research on this topic will encounter consequently comparisons between several business models of different types of sectors.

The COMECON Internal Analysis of the Prospects for the Development of Oil Cooperation with Iraq in the 1970s

October 2023 marks the 50th anniversary of the moment when the world faced the first oil shock of 1973—1974. As time has shown, its influence (along with the influence of the second oil shock of 1979—1980) turned out to be significant not only for the “Capitalist Bloc”, but also for the “Socialist Camp”. On the eve of the first oil shock, in the spring and summer of 1973, a new working body was created within the framework of the Comecon (its Standing Commission on Foreign Trade), the so-called Petroleum Bureau. It was the Petroleum Bureau that in 1973—1978 represented the main coordinating and analytical center of interested Comecon members in the field of taking coordinated steps by the «Socialist Bloc» to build effective foreign economic cooperation with the developing countries that produced liquid hydrocarbons. Among the key activities of the Bureau was the country analysis, which, as a rule, included: a concise economic description of the oil-producing developing countries selected by Comecon for rapprochement; a brief assessment of their domestic political situation, main features and problems of their socio-economic development; information about national companies of these countries in the field of fuel and energy, about their national oil reserves and conditions of oil production, as well as their export capabilities and import needs; information on the possibilities of Comecon members coordinated activity in local markets and multilateral cooperation in various economic sectors in order to ensure a continuous flow of primary energy resources from the “developing world”. In this article, for the first time, the document “Generalized material for the development of practical integrated steps of Comecon members cooperation aimed at timely provision of oil purchases in Iraq on a long-term basis”, stored today in the Russian State Archive of Economics (RGAE), is published and introduced into scientific circulation as an example of Comecon Petroleum Bureau country analysis. The published document confirms Comecon good awareness of what was happening to the oil industry and the economy of Iraq in the first half of seventies.