Price Shocks Research Articles

The importance of heat pump cost reduction and domestic supply chain development in the presence of persisting energy price shocks

In this paper we conduct economy-wide scenario simulations to investigate whether and how the wider economic stimulus associated with deploying heat pumps in the UK may help mitigate the macroeconomic and distributional impacts of persistently high electricity and gas prices. Our results show that expansionary processes triggered by producing and installing heat pumps can help offset contractionary pressures associated with higher energy prices. However, outcomes depend on the extent of domestic supply chain content in manufacturing heat pumps, on installation costs to households, on how and where government revenues accrue. Moreover, the relative importance of drivers varies over time. For example, higher purchase and installation costs may support a greater initial stimulus via producer and domestic supply chain gains, despite the greater cost burden on households. However, over time, cost reductions are required to deliver the most favourable economy-wide outcomes.

How Do Household Coping Strategies Evolve With Increased Food Insecurity? An Examination of Nigeria's Food Price Shock of 2015–2018

ABSTRACTFaced with a significant devaluation of its currency and a surge in food prices, the Nigerian government prohibited the use of foreign currency for food imports. This essentially blocked the importation of numerous food items under the guise of stimulating the domestic output of these staples. Consequently, food prices in Nigeria increased despite a global decline in food prices, and the incidence and severity of food insecurity escalated. This study examines the changes in the types and severity of coping mechanisms for food insecurity resulting from the food price shock caused by the oil price crash, currency devaluation, and restrictions on foreign exchange. Nigeria's General Household Survey Panel data from 2012 and 2015, during periods of high oil prices, is compared with data from 2018 when oil prices had remained low, the currency had been devalued, and the treasury had been depleted. Alongside detailed descriptive statistics, logistic and hurdle regressions are employed for statistical analysis. Findings indicate a rise in the percentage of Nigerian households grappling with food insecurity from 2015 to 2018. During this period, 68.7% of households resorted to at least one coping mechanism, 31.8% adopted six or more coping strategies, and 43.2% resorted to severe coping strategies. The issue stems not primarily from natural disasters or conflicts but from a failure in macroeconomic and agricultural economic policies. Our findings confirm that these policies come at great cost, particularly to female‐headed households, single‐parent households, households headed by elderly people, and other vulnerable populations, pushing them deeper into food insecurity.

Are All Shocks Alike? Evidence From the Effects of Oil Shocks on Military Expenditure in Nigeria

This study investigated the asymmetric effects of oil shocks–oil price, oil demand and oil supply shocks–on military expenditure in Nigeria. Our study confirmed the presence of short-run and long-run asymmetries in all the three models used. Generally, positive oil price and demand shocks positively influence military expenditure and vice versa for negative shocks. However, a positive oil supply shock is detrimental to military expenditure.

How are green stocks and monetary policy related?

We propose and test the hypothesis that green stocks and monetary policies are interdependent. Using time-series data for two large economies (India and Indonesia), that have adopted inflation targeting regimes, we develop a structural vector autoregressive model of monetary policy and green stocks that combines with output. We find that green stock prices fall (rise) in response to inflation with a lagged effect and policy rate shocks for India (Indonesia). Currency depreciation, on the other hand, increases green stock prices for India but has a muted effect for Indonesia. We also discover that, for India, monetary policies hardly respond to green stock price shocks while, for Indonesia, green stock prices do influence the evolution of monetary price variables. Our main contribution is that we decipher the effects of green stocks from aggregate market shocks and show each of these market price shocks is related to the monetary aggregates.

One rule fits all? Heterogeneous fiscal rules for commodity exporters when price shocks can be persistent: Theory and evidence

One rule fits all? Heterogeneous fiscal rules for commodity exporters when price shocks can be persistent: Theory and evidence

What are the costs of rigidity? A general equilibrium study of the fuel market in Argentina

The policy that is most widely applied to the biofuel market in the world is the mandatory blend. This policy aims to induce the use of biofuels by setting a minimum level of biofuel per unit of blended fuel. This paper studies the costs and benefits of such a policy. To do so, a Recursive Computable General Equilibrium model (CGE), calibrated with a new own-developed energy-oriented Social Accounting Matrix of Argentina for 2018, has been developed. Such a model is extended by explicitly embedding a constrained fuel blending model into the CGE setup. This research addresses the following questions: What are the costs and benefits of a mandatory blend compared to a full flexibility scenario? Is it better to induce the use of biofuels through a tax on fossil fuels or a blending constraint? What is the impact of international price shocks when considering different blending regimes? This paper finds that the mandatory policy has a negative impact on the economic activity, poverty, income distribution, and energy affordability, but a positive one on emissions. When analysing the convenience of a special tax on fossil fuels instead of a mandatory regime, this paper finds that the cost and benefits of each policy are distributed differently over time. The special tax on fossil fuels performs better in the short run while the mandatory blend does so in the long run. Finally, this paper finds that flexibility in the fuel market improves the country's performance when there are shocks on international prices.

Economic activities, dry bulk freight, and economic policy uncertainties as drivers of oil prices: A tail-behaviour time-varying causality perspective

This paper examines the dynamic impact of economic activity, Baltic dry bulk and economic policy uncertainty on oil prices. Drawing on demand-side economic theory, we focus on how economic activity and economic policy uncertainty drive oil prices and subsequently contribute to the formation of market equilibrium. In this context, we first introduce a unidirectional quantile and time-varying Granger-causality mechanism for the drivers of oil prices. Our novel rolling window quantile Granger causality approach reveals that economic activity drives crude oil price fluctuations and highlights their important role in market imbalances. In particular, economic activity and the Baltic exchange rate index emerge as essential drivers of oil prices, confirming our hypothesis of a demand-side effect. Moreover, our robustness wavelet quantile correlation (WQC) analyses reveal that economic activity promotes oil price fluctuations along both long-term equilibrium trends and short-term dynamics. In contrast, economic policy uncertainty has a dampening effect on oil prices. More broadly, economic activity is positively correlated with the Baltic exchange dry index, highlighting its broader impact on global trade indicators. Moreover, we use a bivariate Quantile on Quantile regression method to identify the equilibrium searches of different thresholds and estimate the robustness of the validity of the WQC findings. Analyzing the quantile and frequency connectedness spillovers, we observe that shocks from economic activity are particularly pronounced in the tail quantiles, reinforcing the demand-side narrative. Overall, the increased risk in extreme tails underscores the increased interaction between economic activity, oil prices and economic policy uncertainties. Our findings have important implications for policymakers and highlight the need for adaptive strategies to manage potential oil price shocks. Thus, by adopting a demand-side perspective, policymakers can better anticipate and respond to oil price fluctuations, promoting more resilient economic policies.

Global drivers of inflation: The role of supply chain disruptions and commodity price shocks

The determinants of inflation rates have been extensively studied with no clear consensus. Recent research highlights the growing influence of global supply factors, notably supply chain disruptions and commodity price shocks. This paper analyzes the changing impact of these global supply chain disruptions and commodity price shocks, compared to demand shocks, on inflation rates in Germany, Japan, the U.K., and the U.S. from 1998 to 2022. The findings reveal that since the mid-2010s, supply shocks have become the predominant drivers of inflation. After the Global Financial Crisis, commodity price shocks significantly affected inflation in Germany, the U.K., and the U.S., while the influence of global supply chain disruptions on inflation in all four countries surged following the COVID-19 pandemic.

The Impact of Oil Price Shocks on Oil and Gas Production Amidst Geopolitical Risk in OPEC: Insights from Method of Moments Quantile Regression

The Impact of Oil Price Shocks on Oil and Gas Production Amidst Geopolitical Risk in OPEC: Insights from Method of Moments Quantile Regression

Impact of Oil Price Shocks on Russian Macroeconomic Performance

Impact of Oil Price Shocks on Russian Macroeconomic Performance

Does the inflation pass-through of gasoline price shocks depend on the level of inflation?

I show that the pass-through of gasoline price shocks to inflation expectations and to a lesser extent realized inflation is larger if inflation is high. Pronounced historical contributions to inflation expectations mainly occurred in highly inflationary periods.

Forecasting and unveiling the impeded factors of total export of Bangladesh using nonlinear autoregressive distributed lag and machine learning algorithms

Rising global oil prices are a major challenge for an emerging oil-importing nation such as Bangladesh. The majority of prior research on the economic effects of an oil price shock has concentrated on developed countries, with emerging economies receiving comparatively less attention. Bangladesh is vulnerable to price shocks due to its rising oil consumption over the past decade. This study aims to investigate how changes in oil prices would affect Bangladesh's total export earnings and to forecast the overall export volume. This study utilized a nonlinear autoregressive distributed lag (NARDL) approach to account for the asymmetric behavior of oil prices from 1991 to 2021. To assess the accuracy of predictions, the study employed the Prophet forecasting model and the Long Short-Term Memory (LSTM) method. Additionally, the symmetry test revealed a nonlinear relationship between export volume and oil price but a linear relationship between inflation and export volume. According to the NARDL assessment, both positive and negative oil shocks increase export earnings over the long run. The short run summary clarifies that both positive and negative changes in oil prices exert a significant negative effect on exports. Also, Inflation influences export earnings negatively in the short run but positively over the long term. Moreover, using machine learning methods, it was found that the LSTM method outperforms the prophet model in prediction performance with a low root mean square error (RMSE) of 1.88. Also, the analysis revealed policymakers that the export sector requires diversification to reduce its exposure to oil price shocks.

Coal price shocks and economic growth: A province-level study of China

Coal is the predominant energy source in China and exerts a significant influence on China's economic growth. This paper uses panel data to examine the impact of coal price shocks, which are decomposed into different types using the S-VAR method, on provincial economic growth in China from 2007 to 2021. Our results show that: (1) The impact of coal price shocks driven by the contemporaneous supply on economic growth is most significant. (2) The difference of the elasticity of GDP to coal prices becomes explicit when we differentiate the exporting and importing provinces. (3) Furthermore, we differentiate positive and negative coal price shocks and observe asymmetric impact pathways, which are mainly driven by exporters. Overall, our research proves the critical effect of coal prices on economic growth, especially for coal-exporting provinces. The economic impact of coal phase-out in China should be considered discreetly.

Decomposition of oil price shock, changes in market conditions and systemic risk transmission – an analysis from the Chinese perspective

ABSTRACT This research aims to investigate the heterogeneous responses of each specific risk variable across different states in the context of varying levels of crude oil price shocks. Using data period from 27 December 2007 to 28 October 2022, we construct proxy variables for systemic financial risks based on the considerations of four specific perspectives. The results of the empirical analysis indicate that oil price fluctuation observed in short, medium, and long-term time periods has an obvious impact on each risk variable. From the evaluation of conditional value-at-risk difference as well as the marginal expected shortfall, both short-term and long-term shocks have an apparent amplifying effect on market risk when it is at a high level. When evaluated from the angle of liquidity, oil price shocks generally exhibit positive effects on market liquidity, where this effect is more significant in the long term rather than terms. When considering the effect of volatility specifically, oil price shocks are found to cause sharp shocks to the market, whether the market itself is in a stable or volatile state.

Energy shocks in the Euro area: Disentangling the pass-through from oil and gas prices to inflation

We develop a Bayesian Structural VAR model to study the relationship between different energy shocks and inflation dynamics in Europe. Specifically, we model the endogenous transmission from shocks identified by the global market of crude oil and the European natural gas market to two target macroeconomic variables, i.e. inflation expectations and realized headline inflation rate. Our results demonstrate that, since the post-pandemic recovery, inflation in the Euro area is mostly driven by energy price shocks and aggregate supply factors. In particular, the high peaks of the Eurozone inflation are mostly associated with natural gas supply shocks.

Investigating the impact of fuel price shocks on bicycle sharing usage in Budapest

The creation of sustainable urban communities is contingent upon the establishment of a sustainable, efficient, and fast transportation system. Bicycle sharing systems (BSS) are one of the most sustainable and inclusive ways of transportation in cities. An important question is how to increase BSS ridership and whether it can effectively replace cars in cities, hence contributing to achieving the 11th Sustainable Development Goal and creating sustainable urban communities. This paper aims to contribute to this stream of research by investigating the effect of fuel prices on BSS ridership. We exploit a natural experiment from Budapest, Hungary, where fuel prices were capped between November 15, 2021, and December 6, 2022. Once the price cap was suddenly eliminated, fuel prices increased by around one-third immediately leading to a very substantial and rarely observable one-time price increase. The difference-in-difference regression results indicate a 2–6% increase in BSS ridership after the elimination of the fuel price cap. The geographical pattern of the change shows that BSS usage mainly increased in the outer part of the city; however, some areas observed a decline. The regression results are also reinforced by survey findings. Understanding these dynamics is crucial for effective urban planning and transportation policymaking.

Fluctuations oil prices in the world and their impact on Indonesian macroeconomics

Abstract Changes in international crude oil prices can significantly impact economic outcomes. This study tested the impact of oil price fluctuations on macroeconomic variables in Indonesia. The data used is annual data from 1990 to 2021 with the specific purpose of solving the current research deficiency about swings in oil prices. study adds five macroeconomic variables as explanatory factors to accomplish this purpose. We use five macroeconomic variables: economic growth, inflation, interest rates, industrial production, and exchange rates. The impact of oil price fluctuations on GDP, inflation, exchange rates, interest rates, and industrial production indices in Indonesia is examined within a structural vector autoregressive (SVAR) framework. Research shows that oil price shocks significantly impact GDP, inflation, and exchange rate. The results also show that oil price shocks hurt two other variables: the interest rate variable and the industrial production index. The findings derived from the analysis of the impulse response function indicate a detrimental effect on the growth of production, while exerting a favourable influence on inflation. However, the impact on industrial production, interest rates, and exchange rates is very modest and characterised by a degree of uncertainty.

Islamic and conventional stocks: Impact of Russia-Ukraine saga on global commodities

Purpose – This study intends to scrutinize the relationship between oil and gold prices on Indonesia’s Islamic stock market before and during the war between Russia and Ukraine, and compare the nature of sharia and conventional stock during the period of study.Methodology – This study uses daily price data of oil price, gold, Islamic index, and LQ45 index. The period spans from 2020 to 2022, which is split into two sub-periods: pre-war and during the war period. Structural vector autoregression (SVAR) was used for data analysis.Findings – This study provided three main findings. First, the Islamic index was found to be more exogenous than conventional stock, implying the safe haven properties of Islamic stock. Second, oil prices have a negative and significant impact on both conventional and Islamic stocks. However, Islamic stocks are less affected by oil price shocks than conventional stocks. Lastly, Gold is a safe haven asset for both Islamic and conventional stocks.Implications – This study is expected to be beneficial for Islamic investors making investment decisions, particularly in the war period, which is still ongoing and more specific for taking advantage of diversification opportunities.Originality – Despite a huge number of studies that investigate the Islamic stock – oil price nexus, this study uncovers the impact of the most recent geopolitical tension during the Russia-Ukraine War.

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.

Time-Varying Role of House Prices on Monetary Policy in Türkiye

The main focus of this study is examining the time-varying effects of house prices on monetary policy in Türkiye from February 2010 to November 2021. We analyse these effects using a time-varying parameter vector autoregressive model with stochastic volatility (TVP VAR-SV). The evidence indicates that responses of inflation to positive house price shocks decrease over time. The response of credit and interest rates to positive house price shocks increases after 2018. The results reveal that the responses of the Central Bank of the Republic of Türkiye (CBRT) to the changes in the housing market have changed over time.