Oil Price Shocks Research Articles

Managerial performance and oil price shocks

Using an innovative method that segregates oil shocks into supply, consumption demand, and inventory demand factors, we find empirical evidence that managerial ability can have a significant but varying influence on firm performance under these circumstances. Generally, high-ability managers are most beneficial to manufacturing firms during oil shocks. In the event of oil supply shocks that are associated with negative economic implications, talented managers strongly outperform in (i) energy, (ii) agriculture, forestry, & fishing, and (iii) services industries. However, during oil demand consumption shocks that are symbolic of economic growth, competent managers underperform in the (a) energy, (b) mining, (c) construction, (d) retail, and (e) services sectors. Notably, high-ability managers in energy firms are associated with significant outperformance and underperformance during oil supply and consumption shocks, respectively. It is probable that these adept managers employ more active hedging programs to reduce financial distress or minimize earnings volatility to safeguard against oil price downturns. Similarly, in other industries, it is plausible that skillful managers may actively engage in oil price risk management (e.g., reducing reliance, alternatives, hedging, etc.). During supply shocks, the associated benefits outweigh the costs, and vice versa during oil consumption demand shocks.

The oil price-macroeconomy dependence.

This paper investigates the relationship between the price of oil and real output in the United States in the context of a Markov regime switching, identified, structural GARCH-in-Mean VAR model with copulas. We use the copula method to investigate the nonlinear dependence structure, as well as (upper and lower) tail dependence, between the price of oil and real output growth, and Markov regime switching to account for changing oil price dynamics over the sample period. We find an asymmetric negative dependence structure between oil price and output growth shocks and that oil price uncertainty has a negative and statistically significant effect on real output growth.

Estimation of a small open economy DSGE model for Kazakhstan

ABSTRACT This paper adapts and estimates the DSGE model of Medina and Soto (2007) in the context of Kazakhstani economy. The main goal of the paper is to contribute to the scarce macroeconomic modelling literature on Kazakhstan and analyse the structure of the Kazakhstani economy using the DSGE framework. Overall, we find that the oil price shock is key in explaining the variance of virtually all the variables of interest – in particular, it accounts for more than 40% of variance in real exchange rate over the long-term horizon. Furthermore, while the oil price and commodity (oil) production shocks contributed positively to the country’s GDP growth in real terms before the Great Recession, their effects have been primarily negative during the two major economic crises of 2007 and 2015, and the fiscal policy has had mixed success in counteracting them. Lastly, the counterfactual exercises show that the choice to adopt the floating exchange rate policy in 2015 has prevented a larger output slump in the short-term at the cost of stronger currency depreciation, and that countercyclical fiscal rules would have greatly mitigated the immediate negative impact of the 2007–08 and 2015 crises, in addition to making real output more stable overall.

Global impacts of oil price shocks: the trade effect

PurposeOil price shocks greatly impact the global economy, but the effects vary among countries. While higher oil prices benefit oil-exporting countries, they harm the economic performance of oil-importing nations, and vice versa for lower oil prices. However, economic relations, such as trade, can mitigate the impacts of oil price shocks on both groups. In this paper, the authors aim at estimating the effects of oil price shocks on the major net oil-exporting and net oil-importing countries while accounting for international trade.Design/methodology/approachThe authors derive a reduced form of a macro model and set up a Panel VAR model to estimate the direct and indirect impacts of oil price shocks on economic growth. The sample includes data on macroeconomic variables from 30 oil-exporting and oil-importing countries that comprise more than 73 percent of the world's economy. The authors construct the spillover variables using bilateral trade matrix. To control for institutional and structural variations across the countries, they are divided into four groups of developed and developing oil-exporting and oil-importing countries.FindingsThe results reveal that all oil-exporting countries have significantly benefited from oil price shocks, although trade has dampened the effect. The positive growth effect has been more pronounced in oil-exporting developing countries. The impact of oil price shocks on oil-importing countries has been negative with a one-year delay, but not statistically significant, and trade has only had a small effect. The effect has been more substantial in oil-importing developing countries.Research limitations/implicationsOne of the limitations of this study is the focus on trade as the main spillover channel. Given the data availability, other channels such as foreign investment and financial markets can also be included in future studies.Practical implicationsRemoving trade restrictions would help both oil-exporting and oil-importing countries to mitigate the negative impacts of the oil price shocks. However, the asymmetric oil-macroeconomy relationship across oil-exporting and oil-importing countries puts oil-exporting countries in a more vulnerable position as they cannot rely on trade with oil-importing countries to reduce the negative impacts of lower oil prices on their growth. Therefore, it is crucial for oil-exporting countries to reassess their oil-dependent development plans and invest their oil revenues in non-oil sectors to diversity their economies and prepare for a future with reduced dependence on oil.Social implicationsThe recent technological advances, structural changes, and increasing energy efficiency suggest that major oil-importing countries will become less dependent on oil in near future. As a result, oil-exporting countries will also need to undergo structural changes in order to sustain their income level. These significant changes will have important social implications, particularly in the labor market, during the transition, for which preparation will be necessary.Originality/valueWhile the literature on the total impact of oil price shocks on either oil-exporting or oil-importing countries is rich, studies on their spillover impacts are limited. Recent research has shown that trade and migration can affect the impact of oil price shock on the economy in federated countries such as Canada. However, the trade effect on oil price shocks in the international level, where countries are subject to different regulations/restrictions and institutional variations, remains scarce. By considering the trade relationship between different groups of oil-exporting and oil-importing countries, the authors aim to contribute to the literature of the global impacts of oil price shocks on the world economy.

Has the Asymmetric Effect of Oil Price Change in Inflation Expectations Been Impacted by the COVID-19 Outbreak? A Comparison Between the United States and China

Economists and policymakers believe that households’ and firms’ expectations of future inflation are key determinants of actual inflation. This paper applies the ARDL model and nonlinear ARDL model to long-term inflation-targeting policy mechanisms in the United States and China to assess the impact of oil price dynamics and asymmetries on inflation expectations, as well as the difference of this impact before and after the COVID-19 pandemic. In order to show the significant role of the COVID-19 outbreak, this paper includes the data from 2010 to 2021 and takes the pandemic period as a structural break. Taking oil price changes as a variable of interest, and introducing some other significant variables, we find that during the pandemic, the positive impact of oil price shock on U.S. inflation expectations has enhanced, whereas the positive impact on Chinese inflation expectations has weakened. There is also sufficient evidence of the existence of the asymmetric effects of oil price changes on inflation expectations in both countries, but the positive oil price change in the United States has always played a larger role than the negative oil price shock. In China, the impact of positive oil price shock was greater than that of negative oil prices before the epidemic and the effect of negative oil price shocks has increased significantly in the COVID-19 regime.

Comparative Study of Exchange Traded Energy Products Worldwide and Potential Areas in India

The globalization of trade in Indian economy and relatively free movement of financial assets, risk management through derivatives products has become a necessity in India. Until the 1970s, the price of oil was relatively stable with production largely controlled by the biggest oil companies. The 1970s transformed the industry forever. Two oil price shocks meant that price volatility became a fundamental feature of the market, short-term physical markets rapidly evolved, and the need to hedge emerged. India is one of the non-OPEC countries much dependent on its imports to fulfill the domestic consumption demand as it has a much lower level of production. India is a developing country and the requirement for the oil as a primary energy constituent from the industries in the country is at its peak. By systematically examining and analyzing both information collected through this research in major countries with key figures of the oil prices in trading exchange, and a wide range of information that is in the public domain, this paper foresees trends in exchange traded energy products, prices, and presents actions that India should initiate.

Exploring Macroeconomic Implications of Oil Price Fluctuations in India

This study tried to empirically ascertain the interaction of oil prices (OPs) and macroeconomy by using monthly data from January 1991 to January 2020 in the Indian context. Empirical analysis has been carried out on two separate samples (first from January 1991 to June 2002 and second from July 2002 to January 2020) for accommodating changing macroeconomic context. Further, we also tested the suitability for symmetry/asymmetry in the relationship between OPs and macroeconomic variables. It is found that the oil macroeconomy linkage is well approximated by a linear measure. The structural vector auto-regression framework suggests that a positive oil shock during the early reform period causes a significant drop in output growth. There is an increase in inflation in response to a positive shock in OPs and the central bank pursued an expansionary monetary policy to boost investment and consumption. During the last two decades, the decline in output is less pronounced than the first sub-period, while the response of inflation is sharp and significant and lasts for around six months. During recent times, the inflationary effect of oil shocks is a cause of concern and the central bank needs to respond more actively in the future for minimising its effect. JEL Codes: Q31, Q41, E31, E52, E39

The Asymmetric Effects of Oil Price Shocks on Aggregate Demand for Goods and Services in Ghana

Procyclicality has been discovered in crude oil price shocks on aggregate demand. Most studies have used linear estimation techniques, resulting in the loss of asymmetric correlations. We disaggregate the impact of changes in oil prices into positive and negative shocks on aggregate demand and its components from 1970 to 2015 using the nonlinear ARDL framework. The results show that oil price shocks in Ghana have a long-term beneficial asymmetric impact on aggregate demand and its components. Specifically, a positive change in oil price (0.230) has a greater positive effect on the aggregate demand than a negative effect (-0.009) emanating from a negative change in the oil price shock. Further, the same result was obtained for the components of the aggregate demand with the impact on investment expenditures (0.662) being the greatest. Policymakers should diversify energy demand according to our recommendations. Instead of exporting crude oil, officials should encourage its refinement and consumption. Lastly, we suggest that policymakers hedge and use price-smoothing strategies to reduce oil price volatility.

Effects of oil market sentiment on macroeconomic variables

This paper aims to evaluate the effects of oil price shocks on macroeconomic variables, for the economies of the United States and Brazil. We develop a variable that measures the volatility of oil prices, from a textual sentiment analysis. We evaluate oil price shocks using the Local Projection method. Our results suggest that changes in oil prices cause larger impacts on the US economy, compared to the effects on the Brazilian economy. The responses of the US and Brazilian variables were similar when using the sentiment indicator or the VIX volatility index. Finally, we find that decreasing the frequency of the variables, together with changing the method, does not change the response trajectories of the macroeconomic variables.

Frequency domain quantile dependence and connectedness between crude oil and exchange rates: Evidence from oil-importing and exporting countries

This study investigates frequency domain quantile dependence and connectedness between crude oil and exchange rate markets of oil-importing and oil-exporting countries. The quantile cross-spectral and quantile frequency connectedness approaches are employed to examine the risk propagation mechanisms considering market states and investment cycles. Our empirical results are as follows. First, exchange rates strongly depend on oil price shocks on long-term scales, especially for oil exporters. Second, most oil-exporting countries' currencies are the risk transmitters, whereas oil and currencies of oil-importing economies act as risk receivers. Third, there are excess spillovers across frequency bands at the extreme quantiles. Finally, major crisis events reinforce the risk spillover strength. Changes in the connectedness between oil and the ruble during the Russian-Ukrainian conflict are documented. Overall, quantile and frequency domain information is helpful for investors in asset allocation and exchange rate regulators in developing prudent monetary policies against extreme oil price shocks.

Quantile connectedness between oil price shocks and exchange rates

Oil is an energy resource and a driver of global economic activities. The increasing need for oil amplifies its trade and places pressure on the current account balance, which causes exchange rate fluctuations. We transcend the mean-based connectedness measures to explore the oil shocks-exchange rates nexus from an asymmetric perspective. With daily data from 07-03–1996 to 22-08-2022, we analyse the quantile dynamic spillovers between oil price shocks and exchange rates of oil-exporting and oil-importing economies. We show that shock sizes shape the system returns and volatility connectedness, with lower-tailed and upper-tailed shocks having a greater influence on the system connectedness than shocks modelled at the conditional median. By demonstrating asymmetry, the findings emphasise that for a detailed comprehension of the oil shocks-exchange rates connectedness under extreme shocks, it is necessary to go beyond mean-based connectedness metrics. The implications of our findings are important for investors, policymakers, and practitioners.

Inflation Expectations and the Pass-Through of Oil Prices

Abstract Inflation expectations and the associated pass-through of oil price shocks depend on demand and supply conditions underlying the global oil market. We establish this result using a structural VAR model of the global oil market that jointly identifies transmissions of oil demand and supply shocks through real oil prices to both expected and actual inflation. We demonstrate that economic activity shocks have a significantly longer-lasting effect on inflation expectations and actual inflation than other types of real oil price shocks, and resolve disagreements around the role of oil prices in explaining the missing deflation puzzle of the Great Recession.

Time-varying effects of oil price shocks on financial stress: Evidence from India

The emergence of crude oil as an essential portfolio asset warrants an in-depth examination of the nexus between oil shocks and financial stress. This paper identifies and analyses the impact of oil supply shocks, demand-specific oil shocks and risk-related shocks on financial stress in a multivariate time series model with time-varying coefficients and a variance-covariance matrix. The empirical results show that the underlying shocks affect the financial sector differently. The oil supply shocks, in general, do not impact financial stress significantly. However, the results of expected demand shocks exhibit interesting patterns. The shocks emanating from expected demand minimise financial stress in both short and long time horizons. The risk-related shocks captured by the CBOE volatility index indicate the worsening of financial stress when market risk rises, and investors' sentiments deteriorate. The empirical results in this study validate the financialisation of crude oil.

A Bibliometric Analysis on Fuel Prices Fluctuations and Tourism under the Era of Sustainable Development

The tourism industry has great potential for growth in any economy. Its excessive input-to-output ratio has a significant favorable effect on the economy. Oil costs are affecting the tourism industry because oil fuel prices are a direct factor influencing the tourist industry both demand and supply. There has been demonstrated how the price of petroleum has affected transportation, aviation, and tourism has varied. So, for this purpose, the paper uses a bibliometric analysis method based on Scopus statistics, along with R studio productive methods and Vos viewer for visual results to determine the current trends within the along with oil price's consequence on the tourist industry. The findings used Descriptive analyses, thematic maps, and current trends of issues like oil price shocks and tourism operations to predict the frequency of courses. Lastly, by offering new research directions in sustainable tourism, this bibliometric analysis helps us to draw a conclusion to study.

Dynamics of green metal price volatility in times of geopolitical tensions: Effects of oil price shocks and carbon emissions futures

This study analyses the effect of geopolitical tensions, oil prices, and carbon emission futures on green metal prices using the SVAR model. The study focuses on the Russia-Ukraine conflict and utilises a real-time daily dataset from December 1, 2021, to March 7, 2023. The findings show that geopolitical tensions and carbon emissions futures returns have a negative effect on green metal market returns, with oil price returns having a more significant negative impact than the observed temporary upticks. The study also identifies copper, nickel, silver, and zinc returns as negatively associated with geopolitical risk, while aluminium demonstrates a significant positive correlation after temporary downticks. The research further reveals that aluminium, copper, and zinc returns respond positively to carbon emissions futures, while nickel and silver returns correlate negatively. Additionally, oil price shocks negatively impact aluminium, copper, and zinc returns while exerting mixed influence on nickel and silver price returns, with more pronounced positive and negative shocks, respectively. The results have particular relevance in the context of the Russia-Ukraine War, with the positive response of carbon emissions futures to geopolitical risk potentially due to possible disruptions of policies aimed at reducing carbon emissions. The practical policy implications of the findings are discussed.

Shocks of crude oil prices and world trade policy uncertainty: How much do they matter for China’s trade balance with its three largest partners?

The primary contribution of the current article is to use the SVAR methodology to study the dynamic responses of China’s trade balance with its three largest partners – the U.S., Japan, and Korea – to shocks of oil supply, global demand, and oil-specific demand, controlling for world trade policy uncertainty. We discover that the transmission of oil price shocks relies on the type of shock and different trading partners. Thus, China would need to consider the various oil shock components as the key factors determining the dynamics of the bilateral trade flows with its major partners. We also reveal that world trade policy uncertainty plays an important role in fluctuating China’s trade flows with the U.S., but not with Japan and Korea. When examining China–U.S. trade, therefore, it is important to take into consideration the uncertainty surrounding trade policies. Failure to do so may result in model misspecification in econometric models, which could lead to misleading conclusions.

The impact of oil price shocks on economic growth in Algeria

In this study, we investigate the consequences of oil price shocks on Algerian economic growth, both on an aggregated and a disaggregated level. We adopt the method used in (Kilian, 2009) in which global oil supply shocks, global demand shocks, and anticipated demand shocks are defined. We use a two structural VAR models. The first model identifies shocks to oil prices using monthly data on oil production, oil real prices, and indicators of global eco- nomic activity. The second model describes the dynamics of a set of macroeconomic varia- bles: real overall GDP, hydrocarbon GDP, agricultural GDP, construction GDP, and interna- tional trade variables. To grasp the impact of oil shocks on sectoral growth, the model is aug- mented via three external shocks identified in the first stage. Our results are twofold. First, they show the significance of the oil price shocks' impact on the Algerian economy. Second, they indicate an asymmetry in this impact. Negative shocks to oil prices have depressive ef- fects on economic activity as a whole, including the non-hydrocarbon sector. We detect a delay-effect; global demand shocks affect economic sectors after 5-7 quarters, whereas oil price shocks affect the hydrocarbon sector after 1-2 quarters only.

Insights into CO2 emissions in Europe in the context of COVID-19: A panel data analysis

This paper analyzes the dynamics of CO2 emissions over the last decade for a large group of 25 European countries, an issue that is at the center of the ecological transition project involving various commitments (COP21, COP26, G20 meetings, etc.). To this end, our model measures the repercussions of energy price shocks (oil, gas, coal) for carbon emissions, as well as changes in industrial production and sustainable development in the context of the coronavirus pandemic. Using annual data for 23 EU countries, together with Russia and the UK, our findings show that CO2 emissions reacted significantly to oil and coal price shocks and vary with industrial production cycles. We quantified this reaction while computing the related elasticities. Further, while a significant reduction in CO2 emissions was observed during the COVID-19 pandemic, the stepping up of investment in sustainable development and renewable energy consumption also had a negative impact on CO2 emissions. This suggests that the key driver to reducing the risk of climate change and lowering high carbon dioxide (CO2) emissions involves significant commitment to sustainable development.

The asymmetric effects of oil price shocks on the world food prices: Fresh evidence from quantile-on-quantile regression approach

The asymmetric effects of oil price shocks on the world food prices: Fresh evidence from quantile-on-quantile regression approach

The asymmetry of shocks in crude oil price in Nigeria

While studies in Nigeria have focused on the consequences of oil price shocks on the economy, they implicitly assumed that oil price changes are symmetrical without specifically testing for asymmetry. This study concentrated on the shock asymmetries and crude oil price volatility in Nigeria. Used were time series data for the years 1981 to 2022 from the Statistical Bulletin of the Central Bank of Nigeria and the World Bank. The data were analyzed using the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model, and the findings showed that there is a general tendency for oil price shocks to be around 1.83 percent bigger in declining oil prices than in rising prices. The asymmetric shocks to the price of oil completely dominate positive leverage. In order to minimize the economy's reliance on crude oil exports as its main export (and source of revenue), measures for export promotion and diversification should be put in place.