Price Shocks Research Articles

Evaluating the effects of supervised consumption sites on housing prices in Montreal, Canada using interrupted time series and hedonic price models

BackgroundIn 2017, three brick and mortar supervised consumption sites (SCS) opened in Montreal, Canada. Opponents argued the sites would attract people who use drugs and reduce local real estate prices. MethodsWe used interrupted time series and hedonic price models to evaluate the effects of Montreal’s SCS on local real estate prices. We linked the Quebec Professional Association of Real Estate Brokers’ housing sales data provided by Centris Inc. with census tract data and gentrification scores. Homes sold within 200m of the SCS locations between 1 January 2014 and 31 December 2021 were included. We adjusted for internal (e.g., number of bed/bathrooms, unit size) and external attributes (e.g., neighbourhood demographics), and included a spatio-temporal lag to account for correlation between sales. For sensitivity analysis we used site-specific dummy variables to better account for unmeasured neighbourhood differences, and repeated analyses using 500m and 1000m radii. ResultsWe observed a price shock after the opening of the first two SCS in June 2017 (level effect: −10.5%, 95% CI: −19.1%, −1.1%) but prices rose faster month-to-month (trend effect: 1.1%, 95% CI: 0.7%, 1.6%) after implementation. Following the implementation of the third site in November 2017 there was no immediate impact (level effect: 2.4%, 95% CI: −10.4%, 17.0%) but once more prices roses faster (0.9%, 95% CI: 0.4%, 1.5%) thereafter. When we replaced neighbourhood attributes with a site-specific dummy variable, we observed the same pattern. Sales’ prices dropped (level effect: −9.6%, 95% CI: −15.0%, −3.8%) but rose faster month-to-month (trend effect: 0.9%, 95% CI: 0.6%, 1.2%) following June 2017’s SCS implementations, with no level effect (4.9%, 95% CI: −7.3%, 18.6%) and a positive trend (0.9%, 95% CI: 0.5%, 1.3%) after November 2017’s SCS opening. In most 500m and 1000m radii models, there were no immediate shocks following SCS opening, however, positive trend effects persisted in all models. ConclusionOur models suggest homes sold near SCS may experience a price shock immediately post-implementation, with evidence of market recovery in the months that follow.

Geopolitical risk, supply chains, and global inflation

AbstractThis paper investigates the effects of global geopolitical risks and global supply chain pressures on global inflation for the monthly period of 1999M1–2022M12. The investigation is based on a structural vector autoregression model, where the effects of global oil prices and global monetary policy are controlled for. Four alternative measures of inflation are used, including headline, core, food, and energy inflation. The empirical results show that disruptions in global supply chains are the main drivers of global inflation in the long run as the corresponding shocks explain the lion's share of volatilities in headline inflation (by 32%), core inflation (by 30%), and food inflation (by 22%), followed by oil price shocks and policy rate shocks. In comparison, energy inflation is explained the most by oil price shocks (by 55%) followed by supply chain shocks and policy rate shocks. Positive supply chain pressure and oil price shocks have positive and statistically significant effects on headline inflation even after five years, whereas positive policy rate shocks have negative and statistically significant effects on headline inflation in the long run. In contrast, positive shocks to geopolitical risk result in higher headline inflation only up to one year, with insignificant effects in the long run. Several policy implications follow.

Do bitcoin shocks truly Cointegrate with financial and commodity markets?

This study examines the long-run relationships between Bitcoin and various financial and commodity markets. Utilizing a novel methodology termed the Implicit Asymmetric Combined Cointegration Test (IACC), an augmented variant of the Bayer Hanck combined cointegration method (BH), this research applies ten-minute frequency time series data to test asymmetric shocks associated with Bitcoin, stock markets, futures indices, sectoral stock indices, Islamic stocks, commodities, and foreign exchange markets. The principal finding reveals a hidden cointegration between negative Bitcoin shocks and both negative and positive shocks in almost all examined financial instruments, indicating an absence of decoupling in the connections between Bitcoin shocks and other financial instrument shocks. The study demonstrates Bitcoin's centrality in financial investments and establishes long-run relationships between Bitcoin price shocks and those of other financial instruments. The findings suggest caution for participants in both financial and commodity markets, as Bitcoin emerges as a major source of the recent volatility observed in these instruments' prices.

Conflict fuels inflation but the tinder lies elsewhere: Eclectic structuralist thoughts in a developing economy context

AbstractDeveloping country inflation is in the headlines again. Mainstream macroeconomics typically ignores the role of conflict while non‐mainstream work tends to ignore macroeconomic constraints. This paper revisits the issue employing a dependent economy framework with eclectic characteristics. Specifically, I explore the mechanisms that propagate both real and monetary sources of inflation in the presence of real wage resistance and distributional conflict. The analysis shows that the inability to pay for subsidies with taxes or bond issuance in a stylized developing economy could create a situation where a relatively small shock leads to sustained and accelerating inflation and a wage‐price spiral, thanks to conflicting claims on income. Subsidies to protect consumers from external price shocks could, similarly, leave a country vulnerable to accelerating wage‐price spirals as the stabilizing relative price effects of a declining foreign asset position are dampened. Distributional conflict thus plays the role of sustainer rather than the primum mobile. Price controls could, in theory, better enable inflation management if these do not result in redistribution toward spenders. Such controls, however, create other trade‐offs for countries facing balance‐of‐payments fragility.

Does the source of oil price shock matter for Indian sectoral stock returns? A time-frequency approach to analyse dynamic connectedness and spillovers

ABSTRACT This paper examines the connectedness and spillovers between decomposed oil shocks and Indian sectoral equities in a time-frequency domain using the most recent Barunik and Krehlik (2018) approach. Our empirical results show that the oil demand shock is the major spillover transmitter across all time horizons followed by the risk shocks; while oil supply shock appears to be a net receiver in all the frequency bands indicating the differential impact of oil shocks. Among the sectors, Basic Materials and Finance receive the highest spillovers from oil shocks in the short-term; while Consumer Discretionary Goods & Services and Industrials join the list in the medium- and long-term. FMCG, Health, Telecom and IT sectors receive the least spillovers in all the bands, making them apt for investments during periods of high volatility. Our empirical results are robust to the application of the alternative TVP-VAR time-frequency parameter framework. The portfolio analysis shows that inclusion of stocks in Oil and sectors like Metal and Telecom significantly reduces the portfolio risk. Dynamic connectedness analysis reveals that the spillovers dramatically increase during times of extreme turmoil, especially during the Global Financial Crisis (2008–2009) and the COVID-19 pandemic. Policy implications of our empirical results are also discussed.

Oil Price Fluctuation and their Impact on the Macroeconomic Variables: The Case of Kuwait

The fluctuations in the international prices of crude oil have been a major concern for many economies who depend mainly on oil exports. Oil price shocks are a major disturbance for the economies of oil producing countries. This study investigates the impact of oil price shocks on selected macroeconomic variables in Kuwait using secondary data covering the period of 2001 to 2022. The study adopted the Vector autoregression (VAR) method to analyze the response of Kuwait macroeconomic variables to shocks in oil prices. Oil price in the study is considered in 2 categories: the linear oil price and the non-linear oil price (positive and negative changes in oil price). Based on the findings, it is observed that oil price shocks significantly impact macroeconomic variables in Kuwait. It is found that positive changes in oil prices have a more positive and significant impact on the macroeconomic variables compared to the negative changes in oil price. It is however concluded that there is a need for more policy developments to better harness periods of positive oil price experiences, and develop hedging risk framework for periods of negative changes in oil price in order to curb the impact of oil price shocks on Kuwait’s macroeconomy.

Dynamic linkages in agricultural and energy markets: A quantile impulse response approach

AbstractThis article investigates the dynamic linkages between agricultural and energy markets, with a focus on an econometric analysis of multivariate stochastic dynamics based on the joint distribution of state variables. The analysis relies on a quantile approach followed by the evaluation of a copula. Applied to nonlinear price dynamics, the approach is flexible and supports a general evaluation of impulse response functions representing how prices adjust over time and across markets in response to a given shock. The analysis allows for arbitrary distribution functions; it captures own‐price and cross‐price dynamics that can depend on the nature of shocks; and it also allows current changes to affect all moments of the future price distributions. The usefulness of the approach is illustrated in an econometric investigation of dynamic linkages in US corn, ethanol, and crude oil markets. We show how price adjustments can vary across quantiles, reflecting different speeds of adjustments depending on market conditions. We find evidence of nonlinear dynamics specific to the tails of the price distributions. We uncover evidence of positive contemporaneous codependence, especially tail dependence. We show how price shocks affect mean, variance, skewness as well as kurtosis of future price distributions. These results stress the importance of going beyond a standard mean‐variance analysis. They also shed new light on the deep linkages existing in the food‐fuel nexus.

Does Oil Price Shock Drive Inflation? Evidence from G20 Countries

Does Oil Price Shock Drive Inflation? Evidence from G20 Countries

Macroeconomic Impacts of Oil Price Shocks: Evidence from Iraq by Using Vector Autoregressive Model

Based on a VAR framework, Granger Causality Tests, Impulse Response Function and Variance Decomposition analysis on the annual data from 1970 to 2021, This study aims to demonstrate the effect of oil price fluctuations on GDP, imports, international reserves, and exports in Iraq. The Granger causality results demonstrated a unidirectional connection moving from oil price to imports, exports, international reserves, and GDP, this is an inevitable result because oil prices are determined in the international markets according to specific factors that do not include local economic variables. The variance decomposition result indicated that oil price changes are an important source of variation in the studied variables. Finally, the results of the impulse response function indicated that fluctuations in oil prices significantly impact GDP, exports, imports, and international reserves in Iraq. Therefore, we suggest that economic policymakers work seriously to develop practical plans to diversify the Iraqi economy instead of relying too heavily on oil revenues, which are characterized by sharp and continuous volatility, to avoid the negative effects of these fluctuations on the main macroeconomic variables in Iraq.

Modelling Inflation Dynamics and Global Oil Price Shocks in OAPEC Countries: TVP-VAR

This paper aims to examine the dynamic pass-through effect of oil price shocks on inflation in OAPEC countries using quarterly data ranging from 1990:Q1 to 2022:Q4. The incorporation of the TVP-VAR model along with the Markov Chain Monte Carlo method with stochastic volatility estimation offers a robust framework for capturing the time-varying nature of the relationship. Additionally, the analysis of the Impulse Response Function provides valuable insights into the short-term and long-term dynamics following oil price shocks. The results demonstrate a significant positive pass-through effect of oil prices on inflation in the sample member states, with heterogeneous magnitude and persistence. These variations are attributed to diversity in oil dependency, exchange rate regimes, monetary policy frameworks and the degree of openness to global markets. The study suggests the need for effective inflation management strategies and appropriate policy responses to oil price fluctuations. Furthermore, policymakers may consider adjusting exchange rates, interest rates, or trade policies to manage inflationary pressures effectively.

Do higher global oil and wheat prices matter for the wheat flour price in Lebanon?

AbstractThis article investigates the effect of global oil and wheat prices, and local price shocks on the real price of wheat flour in Lebanon. We estimate a structural vector autoregressive model with exogenous variables (SVARX) using Bayesian methods. We then compute the impulse response functions and find that global commodity price shocks play a trivial role. Meanwhile, local gasoline price and wheat flour price‐specific shocks trigger large increases in the Lebanese wheat flour price on impact. Furthermore, since 2020, local gasoline price and wheat flour price‐specific shocks have contributed the most to the historical variation in the Lebanese wheat flour price.

Reprint of “Unveiling the dance of commodity prices and the global financial cycle”

We examine the impact of commodity price changes on the business cycles and capital flows in emerging markets and developing economies (EMDEs), distinguishing between their role as a source of shock and as a channel of transmission of global shocks. Our findings reveal that surges in export prices, triggered by commodity price shocks, boost domestic GDP, an effect further amplified by the endogenous decline of country spreads. However, the effects on capital flows appear muted. Shifts in U.S. monetary policy and global risk appetite drive the global financial cycle in EMDEs. Eased global credit conditions, attributed to looser U.S. monetary policy or lower global risk appetite, lead to a rise in export prices, higher output, a decrease in government borrowing costs, and stimulate greater capital flows. The endogenous response of export prices amplifies the output effects of a more accommodative U.S. monetary policy while country spreads magnify the impact of shifts in global risk appetite.

Do Exchange Rates Respond Asymmetrically to Crude Oil Market Shocks? Insights from BRICS and Pakistan

Abstract The shocks in the crude oil market are unlikely to have symmetric impacts on exchange rates, especially over various time periods. Furthermore, in low- and high-volatility regimes, exchange rates are predicted to respond differently to oil market shocks. By employing Markov-switching model and state-space model, this research empirically investigates whether oil market shocks exert asymmetric impacts on exchange rates, across the time and across different levels of volatility. In doing so, the study utilizes monthly data from January 1994-September 2017 for BRICS countries and Pakistan. The findings indicate that although oil supply shocks are mostly insignificant, oil price shocks appear statistically significant to affect the exchange rates whereas aggregate demand shocks are most volatile and are more likely to cause exchange rate fluctuations. The study concludes that various forms of oil shocks have a wide range of consequences on exchange rate determinations. Nonetheless, exchange rates’ response to oil shocks differ dramatically through low- and high-volatility states, implying that oil shocks exert a time-varying impact on exchange rates. Finally, the findings provide credence to the phenomenon of asymmetry in exchange rate responses to oil market shocks.

The impact of US housing demand and supply shocks on the Australian economy: Analysis implementing a SVAR model

AbstractThis thesis develops an open economy structural vector autoregression model to determine how the Australian economy is affected by both a US housing demand shock and a US housing supply shock. Previous literature has either grouped Australia with other economies or has excluded Australia altogether. This leaves a significant literature gap in explaining how the Australian economy is solely impacted. The results of the model indicate both a US housing demand and a US housing supply shock significantly impact the Australian economy, with the most significant being the impact of a US house price shock upon Australian GDP which is large and persistent over time. The results contribute to the understanding of how Australian policymakers should incorporate the US housing market into policy decisions and central bank modelling.

How does green investment respond differently to decomposed oil shocks?

This study investigates the asymmetric impact of oil price shocks on green investment by using a Nonlinear Autoregressive Distributed Lag (NARDL) framework. Oil price shocks are decomposed from perspectives of supply, demand, and risk of the oil market, and the green investment is proxied by the Dow Jones Sustainability World Index. The asymmetry of the oil price impact is examined from different sources of the shocks and the condition when the specific shock level is positive or negative. Our findings indicate that impacts of oil shocks on green investment are different depending on sources of the shocks and time horizons. Specifically, supply shocks exhibit no obvious asymmetric effects. Positive and negative changes of the demand shock depict asymmetric impacts on green investment, while such an asymmetry gradually evolves to be symmetric in the long-run. In contrast, the impact of risk shocks is symmetric in the short-run while being evolved to be asymmetric in the long-run. Moreover, the linkage of oil shocks with green investment is shown to be altered by unanticipated events such as the financial crisis or the COVID-19 pandemic, suggesting the uncertainty embedded in the two is somewhat similar.

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

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

Extreme co-movements between decomposed oil price shocks and sustainable investments

This paper investigates the extreme co-movements between three types of decomposed oil price shocks, e.g., supply shock, demand shock, and risk shock, and sustainable investments, using the generalized extreme value - autoregressive conditional Fréchet - tail quotient correlation coefficient (GEV-AcF-TQCC) analytical framework. The empirical results have identified that there are regular extreme co-movements between the three types of oil shocks and sustainable investments under extreme market conditions, especially, during the 2014–2016 oil crisis, the COVID-19 pandemic and the event of negative oil prices in 2020, according to the dynamic tail quotient correlation coefficient (TQCC) method. Specifically, the upside and downside trends of supply shocks, the downside trend of demand shocks, and the upside trend of risk shocks act as transmitters of the tail risks between oil prices and sustainable investments. The results also have demonstrated that the tail risk indexes for both the upside and downside trends of decomposed oil price shocks and sustainable investments have time-varying and asymmetric characteristics. Additionally, the static TQCC results have validated that among the three types of oil shocks, demand shocks exhibit the most pronounced tail risk spillover effects on sustainable investments, followed by supply and risk shocks, whose tail risk spillovers are close to each other. A series of alternative analyses ensure the robustness of the findings presented in this paper, which can offer valuable guidance and insights to policymakers and financial investors.

From climatic to international shocks: Where does the evidence stand on income changes and child labor

AbstractChildren in developing countries are vulnerable to shocks and adversities and child labor is often seen as a direct consequence of poverty and economic downturns. While such univocal causality may appear obvious, its empirical basis has not been systematically evaluated. To understand the linkages between shocks, changes in the economic situation of families and child labor, we therefore conduct a systematic literature review on the impact of income‐related shocks on child labor. We evaluate empirical studies of weather events and natural disasters, agricultural shocks such as crop failures, family shocks like parental illness, price shocks and transnational shocks through trade, migration, and remittances. Focusing on the literature that identifies causal effects, we find that the relationship between shocks and child labor is far from univocal. While in most cases adverse shocks increase child labor, we find that favorable shocks that improve earning opportunities may also cause more child labor. Policies to tackle child labor should therefore develop safety nets that minimize the probability of children being used as buffers in adverse economic downturns, but also consider the risk that positive economic shocks may attract children into labor due to changes to the value of children's time spent working.

Vulnerability of Nigerian maize traders to a confluence of climate, violence, disease and cost shocks

PurposeWe study five exogenous shocks: climate, violence, price hikes, spoilage and the COVID-19 lockdown. We analyze the association between these shocks and trader characteristics, reflecting trader vulnerability.Design/methodology/approachUsing primary survey data on 1,100 Nigerian maize traders for 2021 (controlling for shocks in 2017), we use probit models to estimate the probabilities of experiencing climate, violence, disease and cost shocks associated with trader characteristics (gender, size and region) and to estimate the probability of vulnerability (experiencing severe impacts).FindingsTraders are prone to experiencing more than one shock, which increases the intensity of the shocks. Price shocks are often accompanied by violence, climate and COVID-19 shocks. The poorer northern region is disproportionately affected by shocks. Northern traders experience more price shocks while Southern traders are more affected by violence shocks given their dependence on long supply chains from the north for their maize. Female traders are more likely to experience violent events than men who tend to be more exposed to climate shocks.Research limitations/implicationsThe data only permit analysis of the general degree of impact of a shock rather than quantifying lost income.Originality/valueThis paper is the first to analyze the incidence of multiple shocks on grain traders and the unequal distribution of negative impacts. It is the first such in Africa based on a large sample of grain traders from a primary survey.

Time-varying effects of crude oil price fluctuations on tuna fish prices

This research presents an investigation of the time-varying effects of crude oil on the price of three tuna species, namely skipjack, albacore, and yellow fin. The investigation analyses the impact coefficient of oil price fluctuation on tuna species over time with specific phases related to time points when crude oil prices fall, including December 2008 (due to the impact of the Financial Crisis), February 2016 (due to the impact of the US shale oil and gas revolution), and April 2020 (due to the impact of the global COVID-19). The analysis shows that the price of yellow fin and skipjack shows sensitivity to these phased oil price shocks but stays consistent after recovery. This research finds that the relationship between oil price and tuna price depends on specific phases of oil price fluctuations and that global crude oil price shocks could have immediate and short-term impacts on fish markets, especially during a period of financial crisis.