Positive Oil Price Shocks Research Articles

HETEROGENEOUS DEPENDENCE OF OIL-FOOD PRICE DYNAMICS IN AFRICA'S NET OIL-EXPORTING COUNTRIES

The determinants of food prices have attracted sizeable debates among scholars over the last three decades. However, many of these studies ignore the possibility that the impact of oil prices on food prices could vary across the food price distribution. The paper employs a quantile regression technique to ascertain whether food prices respond to the potential heterogeneous impact of crude oil price changes in the six selected African net oil-exporting countries. The coefficient of negative oil price shocks in the panel OLS model is insignificant and positive at the 5% significance level. In contrast, the coefficient of positive oil price shocks significantly affects food prices for the chosen African countries. The quantile regression analysis's empirical findings highlight the diverse dependence effects of various ranges on food prices. All coefficients are non-significant across all quantiles for negative oil price shocks, a conclusion consistent with panel least squares estimate results. Besides, the findings prove that positive changes in oil prices significantly affect the magnitude of food prices in selected African countries. The article concludes that the influence of crude oil price variations on food prices is diverse and positive across quantiles for a subset of Africa's net oil-exporting countries. The findings of this study could have a crucial policy and economic implications for economic agents and stakeholders in diverse fiscal environments. As a result, economic agents must make timely decisions to respond to the effects of oil price uncertainty on Africa's food market.

Do Oil Price Shocks Matter for Environmental Degradation? Evidence of the Environmental Kuznets Curve in GCC Countries

This paper aims to examine the asymmetric impact of oil price shocks on environmental degradation for a panel of six Gulf Cooperation Council (GCC) countries from 1996 to 2016. We use the dynamic seemingly unrelated regressions (DSUR) approach that considers cross-sectional dependency to reveal the interrelations between oil price shocks and carbon dioxide (CO2) emissions. The finding shows that the positive shocks of oil prices have a statistically significant negative effect on CO2 emissions, while negative shocks of oil prices did not affect CO2 emissions. More specifically, the positive oil price shocks have negatively influenced the CO2 emissions in Oman, Bahrain, Saudi Arabia, Qatar, and United Emirates Arab. In turn, the most negative effect is found in Qatar and Saudi Arabia. Meanwhile, the negative shocks of oil prices have statistically significant effects on the CO2 emission of Oman and Saudi Arabia. While for other countries, it does not have a significant impact. Also, the results support an environmental Kuznets curve in Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates; in contrast, the hypothesis was rejected in Bahrain and Oman. This study could help policymakers adopt renewable energy policies and use energy-saving technologies to sustain economic development and improve environmental quality.

Who profits from windfalls in oil tax revenue? Inequality, protests, and the role of corruption

We investigate the relationship between oil windfalls and income inequality using the subnational data of one of the resource-richest and highly unequal countries in the world – Russia. While previous literature produced contradictory findings due to the use of an aggregate measure of oil rents mainly in cross-national settings, we focus exclusively on oil rents that accrue to the subnational governments across one country. Our estimation strategy takes advantage of the two specific features of Russian oil taxation: 1) the policy change when sharing oil extraction taxes with local budgets was discontinued; and 2) the oil tax formula being tied directly to the international oil prices making oil price shocks an exogenous measure of change in oil rents. When we look at the period with oil tax revenues shared with the regional governments, we find that oil windfalls had increased income inequality and benefited the wealthiest quintile of the population in regions with more intense rent-seeking. Further, positive oil price shocks combined with greater rent-seeking reduced the share of labor income but increased the income share from unidentified sources traditionally associated with corruption. These effects of oil windfalls disappeared after the Russian government discontinued oil tax revenue sharing with regional governments. Finally, we examine some political implications of rising inequality due to the appropriation of oil windfalls. We find a positive effect of rising inequality on the frequency of protests associated with grievances among the poor and disadvantaged social groups; this effect, however, exists only in relatively democratic regions.

Does the source of oil price shocks matter for the systemic risk?

This paper investigates the impact of different oil price shocks on systemic risk under different market conditions. We show that the negative impact of negative oil price shocks on systemic risk is greater than the positive impact of positive oil price shocks. Systemic risk is always negatively affected by oil-specific demand shocks but positively affected by oil supply shocks when the market is under medium and low systemic risk levels. By testing the effect of crises, we find that the influence of positive and negative oil price shocks on systemic risk was declined due to the COVID-19 pandemic.

Drivers of Turkish inflation

This paper investigates the drivers of Turkish inflation by using a structural vector autoregression model, where monthly data on global oil prices, unemployment rates, inflation rates, policy rates and exchange rates are used. The empirical results show that Turkish inflation increases following a negative policy rate shock, a positive exchange rate shock, or a positive global oil price shock. The volatility of Turkish inflation is mostly explained by global oil prices and exchange rate movements in the long run, while the contribution of exchange rate shocks to Turkish inflation has continuously increased over time. As additional empirical results show that exchange rate depreciation can be reduced by positive policy rate shocks, it is implied that a conventional monetary policy increasing policy rates following an increase in inflation or a depreciation of Turkish lira would be optimal to achieve and maintain price stability in Turkey, which is the primary objective of the Central Bank of the Republic of Turkey.

Hydrocarbon prices shocks, fiscal stability and consolidation: Evidence from Russian Federation

The current transition to a greener economy affects world markets dynamics. Given the considerable hydrocarbon dependency, we scrutinise the resilience of the Russian fiscal stance to international oil and gas prices at the first phase of this study. In doing so, we apply Cross-Quantilogram and Dynamic Simulated Autoregressive Distributed Lags (DSARDL) to analyse time-series data from January 2011 to August 2021. Our investigation demonstrates the fiscal stance (FS) positively responds to positive oil price shocks at medium quantile of FS and at lower to the higher quantile of oil price. The degree of responsiveness of FS to oil price is profound in the medium memory due to the time lag of the transaction process of the oil trade. Russian fiscal stance is also anchored with the international gas price, but connectivity is less vigorous than oil. We assess fiscal consolidation in the second phase in the case of hydrocarbon prices induced fiscal deficit and surplus. Russian government follows the expenditure side adjustments, mainly the national and social expenditures in fiscal management. Our study provides several practical policy implications to balance fiscal stability towards sustainable development.

The asymmetric effects of oil price shocks and uncertainty on non-ferrous metal market: Based on quantile regression

With the intensifying of competition among big countries and trade friction, prices of non-ferrous metal fluctuate more and more fiercely. This paper examines how asymmetric oil price shocks and different kinds of uncertainty affect non-ferrous metal market under different market conditions over the period from April 2nd, 1990 to April 7th, 2021. The results show that the nexus of non-ferrous metal prices with oil price shocks and uncertainty are distinct under different market conditions. First of all, the effects caused by oil price shocks are the strongest under the bearish market, then the bullish market. Then, with the increase of quantiles, the impact strength of positive oil price shocks is intensified, while the impact strength of negative oil price shocks decreased with the increase of quantiles. Moreover, effects of VIX are more significant than EPU. At last, effects of oil price shocks and uncertainty varies during the financial crisis in 2008, the European sovereign debt crisis, and the COVID-19 pandemic. Considering the asymmetries and heterogeneous of effects from oil price shocks and uncertainty under different market conditions, it's of great necessary for policy makers to formulate targeted policies according to different market expectations.

Investigation on the Effects of External Shocks on Bangladesh's Economy: An Application of the Gvar Modelling Approach

This paper uses the global vector autoregressive (GVAR) modelling approach to study (1) the effects of negative output shocks on Bangladesh's following trading partners on Bangladesh's economy: the United States, China, Eurozone, India and Saudi Arabia (2) positive global oil price shocks. To represent Bangladesh's macroeconomics, the GVAR model contains four key macroeconomic variables as endogenous variables. They are (1) real gross domestic product (GDP), (2) real exchange rate, (3) short-term interest rates, and (4) inflation. The specified GVAR model is estimated using quarterly data from 32 countries/regions from 1993Q4 to 2016Q4. The findings of this paper are consistent with theoretical predictions that external shocks can and will be transmitted to an open economy operating under a fixed or managed floating exchange rate system. For example, quantitatively, if the real output of Bangladesh's trading partners' falls by 1%, its output will fall by 0.39%, while the inflation rate of Bangladesh's trading partners' rises by 1%, and Bangladesh's inflation rate will increase by 1.38%. Although the negative output shock of the US economy will not significantly affect the Bangladeshi economy, the negative output shock of the Chinese economy will have a negative and significant effect on the Bangladeshi economy. The negative output shock on the US economy has caused the real exchange rate of Bangladesh's currency to appreciate and raised its short-term interest rate, although it is not statistically significant. Contrarily, a negative output shock to China or other economies devalues the real exchange rate of the Bangladeshi currency, although it is not statistically significant. However, Bangladesh's interest rates have not responded to negative output shocks from its trading partners (except the United States and Saudi Arabia), and they are not statistically significant. One policy implication of Bangladesh's inflation being overly sensitive to external inflation shocks is that Bangladesh can and should make its currency exchange rate more flexible to protect its economy from external price shocks. Unexpectedly, the external oil price shock did not seem to have a significant impact on the Bangladeshi economy. One explanation is that the impact of foreign inflation on Bangladesh's economy may have reflected the impact of oil prices.

Who Profits from Windfalls in Oil Tax Revenue? Inequality, Protests, and the Role of Corruption

We investigate the relationship between oil windfalls and income inequality using the subnational data of one of the resource-richest and highly unequal countries in the world – Russia. While previous literature produced contradictory findings due to the use of an aggregate measure of oil rents mainly in cross-national settings, we focus exclusively on oil rents that accrue to the subnational governments across one country. Our estimation strategy takes advantage of the two specific features of Russian oil taxation: 1) the policy change when sharing oil extraction taxes with local budgets was discontinued; and 2) the oil tax formula being tied directly to the international oil prices making oil price shocks an exogenous measure of change in oil rents. When we look at the period with oil tax revenues shared with the regional governments, we find that oil windfalls had increased income inequality and benefited the wealthiest quintile of the population in regions with more intense rent-seeking. Further, positive oil price shocks combined with greater rent-seeking reduced the share of labor income but increased the income share from unidentified sources traditionally associated with corruption. These effects of oil windfalls disappeared after the Russian government discontinued oil tax revenue sharing with regional governments. Finally, we examine some political implications of rising inequality due to the appropriation of oil windfalls. We find a positive effect of rising inequality on the frequency of protests associated with grievances among the poor and disadvantaged social groups; this effect, however, exists only in relatively democratic regions.

Modeling twin deficit hypothesis with oil price volatility in African oil-producing countries

The study examines the dynamic connection between fiscal and current account deficits conditioned on oil price fluctuation in selected African oil-producing countries. Annual data for twelve African oil-producing countries for the period 1981–2018 are used. Using the Dynamic Fixed Effect and the Augmented Mean Group techniques due to cross-sectional dependence, results validate the twin deficits hypothesis for the selected African oil-producing countries. Panel data granger causality result also supports a bidirectional connection between the fiscal and the current account deficits. Thus, structural reforms are needed to spur national savings and diversify the export sectors of these countries. It is also imperative that positive oil price shocks are not assumed to be permanent shocks so as to smoothen consumption and implement a robust fiscal rule and framework for managing excess crude oil prices for stabilization.

Price transmission between oil and gasoline and diesel: A new measure for evaluating time asymmetries

One of the most widely debated issues concerning asymmetric price transmission between oil and fuel prices is what is known as the “rockets and feathers” phenomenon. Although theoretical debate on the short-term connection between oil prices and petroleum product prices takes into account the speed and the magnitude of response, a literature review shows that empirical applications have centred their attention on the latter. This article contributes to the discussion introducing a new measure to quantify mean lag responses to positive and negative oil price shocks from asymmetric dynamic multipliers from a non-linear autoregressive distributed lag (NARDL) model that analyses weekly data from 2009 to 2020 for 12 OECD countries. The results show that both asymmetries, in terms of speed and magnitude, exist for many of the analysed markets, demonstrating the importance of not only accounting for the impact but also for the mean lag of the response.

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

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

Investigating the asymmetry effects of crude oil price on renewable energy consumption in the United States.

The reduction in oil prices might make crude oil a cheaper alternative to renewable energy (RE). Given this, the present paper examines the effect of fluctuation of oil prices on the use of RE in the United States (US) during the period 1970 to 2018. We constructed two nonlinear autoregressive distributed lag (NARDL) models to examine the effect of the positive and negative oil price shocks on the use of RE in the US. The RE consumption is taken as the dependent variable and the gross domestic product (GDP), Brent crude prices, population density, trade openness, and price index as independent variables. The result revealed that the rise in crude oil price, GDP, and population density will increase RE use in the short run and in the long run as well. Moreover, the study finds that any decrease in oil prices will decrease RE use in the short run and its effect will eventually diminish in the long run. On the policy front, it is suggested that US should raise its energy security by reducing its dependency on imported crude oil and increase the role of RE through the imposition of taxes on oil and increase the base of production and consumption through a series of measures.

Oil Price Shocks and Stock Market Performance: A Non-Linear Approach (1986-2019)

This study investigated the asymmetric effect of oil price shocks on stock market performance in Nigeria. Secondary data covering the period between 1986 and 2019 were employed for this study. Quarterly data of brent crude price, all share index, real exchange rate and inflation rate were sourced from Central Bank of Nigeria Statistical Bulletin (2019), OPEC Statistical Bulletin (various publications) and Nigerian Stock Exchange Fact Book (2019). Data collected were analysed using Non-Linear Autoregressive Distributed Lag (NARDL). The NARDL results showed that in the long run, positive oil price shocks, (t= 5.39; p<0.05) had significant positive effect on stock market performance. Negative oil price shocks (t= 5.81; p<0.05) had significant positive impact on stock market performance. In the short run, current period negative oil price shock (t= 2.01; p<0.05) exert significant positive effect on stock performance while previous period positive oil price shocks (t= 1.94; p<0.05) pose significant positive effect on stock market performance in Nigeria. The study concluded that oil price shocks is a deterrent to stock market performance in Nigeria and the impact of oil price shocks on growth rate in Nigeria is both positive and negative. Keywords: Oil Shocks, GDP, Asymmetry, Stock Market, Stock Performance, NARDL DOI: 10.7176/JESD/12-14-09 Publication date: July 31 st 2021

Oil price volatility and firm profitability: an empirical analysis of Shariah-compliant and non-Shariah-compliant firms

PurposeThis study examines the impact of oil price volatility on firm profitability. As Shariah-compliant firms operate under restrictions, the study also explores whether oil price volatility affects Shariah-compliant firms differently from their non-Shariah-compliant counterparts.Design/methodology/approachThe study sample includes all non-financial firms listed on Gulf Cooperation Council stock exchanges from 2005 to 2019. In evaluating the oil price volatility–profitability relationship, static (panel fixed effects) and dynamic (system generalised method of moments) models were used.FindingsOil price volatility significantly depresses firm profitability. In addition, Shariah-compliant firms are more significantly affected by oil price volatility than their non-Shariah-compliant peers. The results suggest that high oil price volatility exposes Shariah-compliant firms to higher bankruptcy risk than non-Shariah-compliant firms and that positive and negative oil price shocks have asymmetric effects on firm performance.Research limitations/implicationsThe findings of the paper call for more economic diversification by supporting non-oil sectors in the region and raise the need for more development of Islam-compliant products that compete with traditional instruments to help Shariah-compliant firms cope with uncertainty. Moreover, managers need to prepare quick alert and response procedures to reduce the negative impacts of oil price volatility on profitability.Originality/valueTo the best of the authors’ knowledge, this study is the first to explore the relationship between oil price volatility and profitability of non-financial firms. Further, the study extends prior Islamic corporate finance literature by enhancing the understanding of how Islamic corporate decisions affect firm performance during instability.

Oil Price Shocks and Civil Conflict: Evidence from Nigeria

Abstract When and for what reason do governments choose to monopolize violence and consolidate power? Theory suggests three channels: when the government has coercive power against the opposition, if it shifts the distribution of power in its favor, and when contingent spoils are large. Using international oil price shocks and a novel dataset on oil-producing local government areas, this article examines how commodity prices affect civil conflict in Nigeria. Results show that a rise in oil price leads to a more than proportionate increase in government attacks on rebel groups in the oil region. The findings are consistent with the theoretical predictions: positive oil price shocks increase the monopoly of violence by the government through an increase in coercion, a rise in regaining territories from rebel groups, and an increase of violence in areas with large oil fields.

Oil Prices and the Algerian Exchange Rate: Is there any Difference with Hidden Co-Integration?

Abstract Research background: The aim of this paper is to examine the long run relationship among oil prices and the Algerian Dinar exchange rate over the period January 1995–February 2020 in Algeria as one of the most important oil-exporting countries and one of the OPEC members. Purpose: This study investigated the co-integration relationship between oil prices and exchange rate in Algeria by testing the long-run relationship between the two variables and their positive and negative shocks. Research methodology: the study applied both the traditional co-integration analysis using Engle-Granger, Phillips-Ouliaris and Johansen-Juselius tests and the hidden co-integration presented by Granger and Yoon (2002). Results: The results revealed that there is no evidence of a co-movement and linkage between oil prices and exchange rate in Algeria over the period of study neither with the original series nor between the cumulative components whatever the dependent variable. Novelty: This paper fills in the missing link between the Algerian Dinar exchange rate and oil prices especially with the absence of the hidden co-integration analysis in the case of Algeria and most of the developing countries. To deal with the oil shocks according to Apergis and Miller (2007) and Narayan and Gupta (2015) studies where when they suggested distinguishing between the negative and positive oil price shocks because the asymmetric effect on the macroeconomic variables.

Impact of global health crisis and oil price shocks on stock markets in the GCC

This study examines the impact of global COVID-19 cases and oil price shocks on the stock markets in the GCC. Using the Kalman filter to generate the unexpected oil price shocks, we find that, with the exception of Oman, the GCC markets responded to positive and negative oil price shocks before and during the pandemic, with impacts of higher magnitude since March 11, 2020. We also find that the spread of global COVID-19 cases had in itself no meaningful impact on the GCC stock markets.

EXCHANGE RATE RESPONSE TO OIL PRICE AND POLITICAL SHOCKS: WHAT CAN NIGERIA DO?

This study determines how political institution (factor) and oil prices play a significant role in exchange rate instabilities in Nigeria between and . Employing a VECM model with time series and structural analysis, the study decomposes the oil prices into positive and negative shocks. The findings show a symmetric impact from positive and negative oil shocks while political/institutional factor, on the contrary, indicates an asymmetric impact on exchange rates. The study, therefore, recommends that strong political institution that promotes good governance, accountability and transparency should be put in place. This will untimely reduce the cost of importation that prevents the country from reaping the benefits of positive oil price shocks. While this study employs one of the unique approaches to the study of exchange rates worldwide, it also provides insights to how institutional/political factor contribute to exchange rate instability in Nigeria.