Effects Of Shocks Research Articles

Financial ambiguity and oil prices

Recent theoretical developments in economics distinguish between risk and ambiguity (Knightian uncertainty). Using state-of-the-art methods with intraday stock market data from February 1993 to February 2021, we derive financial ambiguity and empirically examine the effect of shocks to it on the price and volatility of crude oil. We provide evidence that ambiguity carries important information about future oil returns and volatility perceived by investors. We validate these results using Granger causality and in-sample and out-of-sample forecasting tests. Our findings reveal that financial ambiguity is a possible factor that explains future drops in oil prices and their increased variability. Our findings will benefit scholars and investors interested in how financial ambiguity shapes short-term oil prices.

Innovation and Spillover Effects of Energy Demand Shocks in Belt and Road Economies

Innovation and Spillover Effects of Energy Demand Shocks in Belt and Road Economies

The performance of interrupted time series designs with a limited number of time points: Learning losses due to school closures during the COVID-19 pandemic.

Interrupted time series (ITS) designs are increasingly used for estimating the effect of shocks in natural experiments. Currently, ITS designs are often used in scenarios with many time points and simple data structures. This research investigates the performance of ITS designs when the number of time points is limited and with complex data structures. Using a Monte Carlo simulation study, we empirically derive the performance-in terms of power, bias and precision- of the ITS design. Scenarios are considered with multiple interventions, a low number of time points and different effect sizes based on a motivating example of the learning loss due to COVID school closures. The results of the simulation study show the power of the step change depends mostly on the sample size, while the power of the slope change depends on the number of time points. In the basic scenario, with both a step and a slope change and an effect size of 30% of the pre-intervention slope, the required sample size for detecting a step change is 1,100 with a minimum of twelve time points. For detecting a slope change the required sample size decreases to 500 with eight time points. To decide if there is enough power researchers should inspect their data, hypothesize about effect sizes and consider an appropriate model before applying an ITS design to their research. This paper contributes to the field of methodology in two ways. Firstly, the motivation example showcases the difficulty of employing ITS designs in cases which do not adhere to a single intervention. Secondly, models are proposed for more difficult ITS designs and their performance is tested.

Exploration of stress reactivity and fear conditioning on intrusive memory frequency in a conditioned-intrusion paradigm

Background and objectivesThe conditioned-intrusion paradigm was designed to provide insight into the relationship between fear conditioning and intrusive memory formation, which is relevant to understanding posttraumatic stress disorder symptoms and treatment. However, boundary conditions of this new paradigm have not been explored and it is currently not known whether findings from this work are valid in a clinical context. MethodsIn the current study, we explored the relationship between stress reactivity to trauma film clips, usual exposure to violent media, renewal of fear conditioning using skin conductance as well as subjective ratings, and the effect of shock versus film clip during conditioning on the frequency of intrusive memories. An adapted fear conditioning paradigm using trauma clips as unconditional stimuli was used, and participants subsequently reported intrusive memories of the trauma clips. ResultsSkin conductance responses to conditioned stimuli paired with shocks and film clips were significantly higher than conditioned stimuli paired with film clips alone. Subjective stress reactivity, previous exposure to violent media, and film valence rating were associated with the frequency of intrusive memories. No aspects of fear conditioning were associated with intrusive memories, and factor analysis suggested the fear conditioning and stress related to film clip viewing were mostly separate constructs. Similarly, content and triggers of intrusive memories were usually film-clip related rather than conditional stimulus related. LimitationsWe did not observe strong conditioning effects of the unconditional stimuli to conditional stimuli, which were shapes rather than high frequency stimuli such as faces. ConclusionsThese findings provide potential boundary conditions for this paradigm and suggest multiple ways in which the validity of the paradigm can be tested in the future.

Monetary Policy Transmission in Canada – A High Frequency Identification Approach

Abstract I study the effects of monetary policy shocks in Canada on economic and financial variables. With a narrow window around a policy announcement, I create a new set of intraday level, high-frequency monetary policy surprises using the three-month Canadian Bankers’ acceptance rate futures. I use this measure to identify monetary policy shocks as an external instrument in a monthly VAR. Following a 25 basis point contractionary policy shock, I find that the decline in output is more powerful and peaks earlier than previous empirical works show, with a peak decline of 0.5 % points after 18 months. Price level declines are similarly more powerful and earlier, reaching a decline of 0.3 % points after 24 months. In addition, increases in the credit and mortgage spreads indicate the presence of a domestic credit channel of monetary policy transmission for Canada. Finally, I show that the surprise measure is robust to information effects.

Innovative Entrepreneurial Activity in Latin America and the Effect of External Environmental Shocks

Innovative Entrepreneurial Activity in Latin America and the Effect of External Environmental Shocks

Product market shock, stakeholder relationships, and trade credit

The COVID-19 pandemic resulted in an extremely rare instance of a shock to global product markets. Using quarterly data for a sample of 7397 firms from 54 countries over the period 2017–2020, we study the causal impact of this shock on trade credit. Employing a difference-in-difference analysis, we find that, in contrast to findings in the literature on financial market shocks, low-credit quality firms are credit-rationed by their suppliers during a shock to product markets and that for low-credit quality firms, there is no substitution of trade credit with financial credit. Importantly, however, our analysis shows that low-credit quality firms with better stakeholder relations are able to obtain more trade credit than those with weaker stakeholder relations. Our results are robust to alternative definitions of key variables, alternative methodologies that address endogeneity concerns, a placebo test, stage of market development, and various levels of controls for unobserved heterogeneity. We show that trade credit is conditional on product market conditions and is not always a generous substitute for financial credit. However, maintaining good relations with stakeholders serves as an antidote to the adverse effect of product market shocks on trade credit.

Comment on “The long and variable lags of monetary policy: Evidence from disaggregated price indices” by S. Borağan Aruoba and Thomas Drechsel

The vast majority of the literature on the effects of monetary policy shocks has considered their impacts on aggregate variables, including aggregate prices. The paper by Borağan Aruoba and Thomas Drechsel studies the impacts of monetary policy on the components of PCE. It documents considerable variability in the impulse response functions across components and finds that monetary policy shocks have large but very delayed effects on price aggregates. The finding of cross-sectional variability and it’s implications are very convincing, The large but delayed effects on aggregates may be more dependent on methodology and shock identification.

The Effect of Credit Shocks on Sustained Team Collaboration in Patenting

The Effect of Credit Shocks on Sustained Team Collaboration in Patenting

Energy-related uncertainty shocks and inflation dynamics in the U.S: A multivariate quantile-on-quantile regression approach

Existing literature suggests that uncertainty shocks can propagate like aggregate demand shocks or aggregate supply shocks. By way of extension, this study investigates the effect of energy-related uncertainty shocks on U.S. inflation while incorporating the effect of industrial production and interest rate uncertainty shocks. Using a multivariate quantile-on-quantile regression for the period 2000:M6 to 2019:M7, the findings reveal that energy-related uncertainty shocks amplify inflation by manifesting as cost-push shocks with a stronger connection emerging in quantiles slightly above the median quantile distribution of energy-related uncertainty. Although industrial production positively drives inflation, its effect is observed less around median quantiles of inflation than in the lower and upper quantiles. Furthermore, the effect of interest rate uncertainty is negative and stronger in quantiles around the median of inflation, suggesting that interest rate uncertainty behaves like aggregate demand shocks. Based on these findings, policy implications are offered.

Asymmetric Effects of COVID-19 Deaths and Oil Price Shocks on Stock Market Returns in Some Selected African Countries: Evidence From Nonlinear ARDL Approach

This study investigates the asymmetric impact of oil price shocks and COVID-19 total deaths on Kenya, Morocco, Nigeria and South Africa stock market returns. To achieve this objective employing weekly time series data from March 13, 2020 to September 23, 2022, first, we apply the BDS test which confirm the nonlinearity of each series. Second, stationarity tests are used to investigate each series for unit root. The results show that series are stationary in level and in first difference. Third, the bounds test reveals that the series have a cointegration relationship and we apply the nonlinear autoregressive distributed lag (ARDL) ARDL framework to decompose oil price into positive and negative partial sum to investigate a possible asymmetric effect of oil price on stock market returns. The main findings of the asymmetric ARDL model reveal that, in the short-run dynamic, a positive shock in the oil price have a negative and positive effect on stock market returns in Morocco and South Africa respectively. The result is insignificant for Kenya and Nigeria. A negative shock in the oil price have a negative effect on the stock returns in Nigeria, South Africa and in Kenya, Morocco with one period lag. Furthermore, in the long-run, a positive shock in oil price exerts a negative effect on the stock market performance in Morocco and Nigeria while a negative shock in oil price leads to a negative effect also on the stock market returns. The total deaths present a counterintuitive result. Both in the long-run and short-run dynamic, the total number of deaths due to COVID-19 have a significant increasing effect on stock market returns in Kenya, Morocco and South Africa except for Nigeria.

Do capital controls absorb global financial shocks? Evidence from emerging market economies

ABSTRACT This paper examines the role of capital controls as an effective policy instrument to insulate Emerging Market Economies (EMEs) from global financial shocks. Using state-dependent Local Projection method on a sample of emerging market economies, we find that economies with strict inflow controls are able to moderate the effects of global financial shock on GDP, real housing prices and private credit. We also find that monetary policy responds countercyclically to global financial shock in strict capital inflow controls state, which provides support for the use of inflow controls as a macroeconomic stabilising policy tool. Further, the results suggest that individual asset category inflow controls significantly contribute to overall effectiveness of capital inflow controls to act as shock absorbers. The findings suggests that the policy makers in EMEs may consider capital controls as an effective policy tool to increase the resilience of their economies against global financial shocks.

Microstructure and corrosion behaviour of metal copper parts formed by laser shock

The effects of laser shock forming (LSF) on material microstructure evolution and its electrochemical corrosion behaviour were investigated. Results show that high-density dislocations and stacking faults are formed on the laser-irradiated surface layer of parts. The laser-irradiated surface of the parts subjected to two-shot LSF exhibited better corrosion resistance, with a 2-fold decrease in the passive current density, 3.5-fold increase in the charge resistance, and ∼12-fold thicker passive film compared with the undeformed sheet. The formation of nano-grains, compressive residual stresses, and a dense Cu2O oxidation film during LSF contributed to the improved corrosion resistance of the LSF-fabricated copper parts.

Can the improvements in human capital quality mitigate the negative impact of ageing on growth? Evidence from selected EU countries

AbstractMost long‐term GDP projections in developed countries expect a substantial decline in GDP growth rates over time. The main factor behind it is demographic changes, especially the decreasing working‐age population. We argue that these projections do not consider improvements in the quality of the human capital, which may, at least to some extent, mitigate the effects of the negative demographic shock. We start with a simple observation—the skills of younger age cohorts are higher than of older cohorts. Assuming that the current level of skills will be obtained also by the generations which will enter the labour market in the future, the average level of skills among the working‐age population will increase. Trying to catch this effect, we use the Programme for the International Assessment of Adult Competencies standardised test results to create an aggregate human capital measure, the average skill level of the work force, for 18 European Union countries and project it until 2040. We show that on average at least one sixth of the negative impact of the shrinking of the working‐age population can be offset by the increase in the quality of human capital and that this number can increase to three quarters in a less conservative scenario.

The dynamic effects of oil supply shock on China: Evidence from the TVP-Proxy-VAR approach

This study examines how changes in oil supply impact oil prices and China's macroeconomy. We developed an estimator that uses OPEC's institutional characteristics and high-frequency data to identify an oil supply surprise shock. This oil supply surprise is then incorporated as an exogenous variable into a TVP Proxy VAR model to analyze the effects of oil supply shocks on China's economy. Our findings indicate that negative oil supply shocks lead to higher oil prices, which in turn cause increases in China's interest rates and inflation, a decline in stock prices, a short-term rise in exports, and a long-term decrease in industrial output. When considering time-varying model parameters, we found that periods with larger oil supply shocks have a more pronounced impact on the macroeconomy. Our research provides empirical evidence for a better understanding of the effects of energy supply fluctuations.

Natural gas in Europe: The potential impact of disruptions to supply

This paper studies the economic impact of a potential full disruption of Russian pipeline gas flows to Europe. We apply a modeling framework that takes into account frictions within the pipeline infrastructure, and compare results to those from a framework assuming a fully integrated EU market. Our findings suggest that the most vulnerable countries in Eastern Europe – Hungary, the Slovak Republic and Czechia – could have faced shortages of as much as 40% of gas consumption and gross domestic product shrinking by up to 6% in the summer of 2022 in the event of a full shutoff with severe pipeline frictions. The effects on Austria, Germany and Italy could also have been significant, depending on the remaining pipeline bottlenecks. Ex post, the observed output losses in Europe were lower, more in line with results from the fully integrated market framework, because (i) concerted efforts were made to keep the Europen gas market as integrated as possible, and (ii) Russian pipeline gas never fully ceased. Overall, the paper shows that integrated energy markets with a resilient infrastructure help to buffer the economic effects of energy supply shocks.

Tracking trend output using expectations data

Abstract This article proposes a new approach to measuring trend output that exploits survey data on expectations to distinguish the effects of permanent and transitory shocks and to track the time-variation in the processes underlying the determination of output. The approach is illustrated using measures of output expectations and output uncertainties based on a business survey conducted for UK manufacturing. The measures are employed in a time-varying vector autoregression (VAR) to track trend output and to provide a compelling characterization of the output fluctuations in UK manufacturing over the last 20 years.

Corruption perceptions in the Schengen Zone and their relation to education, economic performance, and governance.

In the quest for integrity and transparency, the perception of corruption within a state not only undermines trust in governance but also hinders sustainable progress. This study investigates the relationship between education, economic performance, and governance and their impact on the assessment of corruption in the context of sustainable development goals. The research framework included data from 14 European countries, members of the Schengen zone, using panel data for the period 2003-2022. The analysis of the sample indicators guided us to apply further advanced research methods. Principal Components Analysis was applied to reduce dimensionality. Under various assumptions related to heterogeneity, stationarity and exogeneity, panel Fixed Effects (FE) and Dynamic Panel with Generalized Method of Moments (GMM) were applied to link the drivers and the perception of corruption. The results are twofold: (i) on the one hand, the diachronic evolution of corruption, education index, economic performance or governance perceptions reveals different patterns for the countries of the Schengen zone; (ii) on the other hand, the composite index for education and governance assessment had a significant impact on corruption perceptions, while economic performance showed no apparent link to corruption. Incorporating the effects of economic and political shocks, the study will explore the resilience of the Schengen Zone's governance against corruption, particularly by examining the effectiveness of crisis management and education's role in reinforcing integrity. It will also conduct a longitudinal analysis to assess how these shocks influence corruption perceptions over time, offering insights into the adaptability of policy responses and their lasting impact on public trust. The findings establish new research pathways for academics and provide valuable incentives to policymakers and professional trainers to improve mechanisms for combating corruption.

Mutual fund partial liquidation and future performance

AbstractWe examine the determinants of mutual fund partial liquidation and the effect of a negative shock to fund size on performance. We find that older funds from a smaller family with a large number of share classes are more likely to conduct partial liquidation. As fund size decreases after partial liquidation, its performance improves. This effect is more pronounced for funds with stronger pre‐event liquidity constraint and funds that subsequently experience a larger decrease in liquidity, suggesting that liquidity constraint is a contributing factor of fund performance. These findings are consistent with mutual funds having decreasing returns to scale.

Functional Oil Price Expectations Shocks and Inflation

ABSTRACTThis paper investigates the inflation effects of oil price expectations shocks constructed as functional shocks, that is, as shifts in the entire oil futures term structure (both standard and risk‐adjusted). The latter are then included in a vector autoregressive model with exogenous variables (VARX) to examine the US case. Counterfactual analysis is also carried out to investigate second‐round effects on inflation through the inflation expectations channel. These are found to be significant, in contrast to earlier studies based on standard oil price shocks. Additional nonlinear local projections including a shock decomposition exercise show that inflation and inflation expectations are primarily driven by changes in the curvature (level and slope) factor when the latter are anchored (unanchored). These findings provide useful information to policymakers concerning the impact of oil price expectations on inflation and inflation expectations.