Dynamic effects and driving intermediations of oil price shocks on major economies

Interest in oil price shocks' economic effects has grown in recent years. However, previous studies mostly failed to clarify the dynamic transmissions of oil price shocks on representative economies from global and driver perspectives, even ignoring oil price fluctuations when linking oil prices and economy together. This paper examines the dynamic relationships and driving intermediations between multiple oil price shocks and macroeconomy by applying Bayesian vector autoregressive models with stochastic volatility and time-varying parameters, using the USA, China, the Euro-19, and Japan as research objects. Results show that, in the whole sample, all oil prices have the strongest effects on Japan, followed by China, Euro-19, and the USA, with possible directional differences. All oil prices' economic effects intensified during the crisis and Covid-19, accompanying significant oil price fluctuations. Regarding asymmetry, in the whole sample and critical times, stronger effects of rising oil prices show in the short term, but opposite in the long term. Consumer price, interest rate, and exchange rate are the general intermediations of oil prices in China and the USA, Euro-19, and Japan, respectively, and exchange rate is the additional intermediation in China, Euro-19, and Japan during the crisis and Covid-19. Overall, the results are solid.

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.

Volatility Spillovers between Stock and Energy Markets during Crises: A Comparative Assessment between the 2008 Global Financial Crisis and the Covid-19 Pandemic Crisis

This paper investigates volatility spillovers between energy and stock markets during periods of crises. Our main findings reveal that transmissions of volatilities among these markets during the Covid-19 pandemic crisis exceeded the ones recorded throughout the 2008 global financial crisis. All stock markets are net transmitters of volatility to energy markets during the 2008 global financial crisis while they show different patterns during the Covid-19 crisis. We also provide evidence of asymmetric volatility spillovers among stock and energy markets. Our results also indicate that on average natural gas provides better hedging effectiveness to the stock markets than crude oil.

The impacts of demand and supply shocks in the dry bulk shipping market

The freight rate is a representative variable in the shipping market and is characterized by a cyclical re-lationship. Even though downturns in the shipping market, such as the shipping industry recession in the 1980s, the global financial crisis in 2008 and COVID-19 crisis in 2020, recur, few studies have analyzed the dynamic relationship between supply and demand in terms of its effect on freight rates. Thus, this study classifies the factors affecting fluctuations in dry cargo freight rates into demand, supply, and freight rate specific demand factors, which play the most important role in managing risk in the shipping market. Based on the recursive structural vector autoregressive (recursive SVAR) model, we analyze the historical con-tributions of the effects of each factor across different time periods. Two main findings are summarized as follows: first, we identify the dynamic relationship between factors affecting BDI in the shipping market, and reveal that the magnitude and direction of factors are different. Second, we verify that in an extreme situation in which freight rates exceed the normal range, the market is overheated, and freight rates are therefore determined by the freight rate specific demand of market participants rather than by the actual supply and demand.(c) 2023 The Authors. Production and hosting by Elsevier B.V. on behalf of The Korean Association of Shipping and Logistics, Inc. This is an open access article under the CC BY-NC-ND license (http://creative-commons.org/licenses/by-nc-nd/4.0/).

Oil price shocks and inflation: A cross-national examination in the ASEAN5+3 countries

We test interaction between the oil price shocks and inflation in the ASEAN5+3 countries utilizing 35 years of monthly data beginning in 1987–2022. We show that when the COVID-19 pandemic is factored into our sample, oil-specific demand shocks and aggregate demand shocks had a significant impact on inflation in these countries. These findings hint that the COVID-19 pandemic is likely the fundamental cause of the inflationary impact of these shocks. The impact of rising inflation sparked by shocks emanating from oil-specific demand and aggregate demand is evident in Malaysia, Singapore, Thailand, the Philippines, and Japan. We discover evidence that inflation responds asymmetrically to oil price shocks, depending on whether the shocks are positive or negative. Our empirical findings have significant policy implications for policymakers as they provide a reasonable explanation for the ASEAN5+3 countries' inflationary responses to various oil price shocks. © 2023 Elsevier Ltd

Oil price shocks and exchange rate dynamics: Evidence from decomposed and partial connectedness measures for oil importing and exporting economies

This paper introduces a novel framework of partial connectedness measures to investigate contagion dynamics between different types of oil price shocks and exchange rates. Oil price shocks are persistent net transmitters of shocks within the network. It is found that the oil shock net spillovers made up most of the net connectedness values in most countries during the pre-COVID-19 period. Both oil exporters and oil importers, without any exception, were all net receivers of shocks. However, during the COVID-19 era, there were significant differences within the groups of countries. It is also observed that the oil-risk shock transmits to the other two types of oil shocks in the pre-COVID-19 and during the COVID-19 periods. The results may have potential implications for traders. © 2023 Elsevier B.V.

Oil structural shocks, bank-level characteristics, and systemic risk: Evidence from dual banking systems

By performing a structural VAR analysis on oil price shocks, we provide an evidence on how the origins of oil price shocks impact the risk level of banks in oil-exporting countries and whether bank-level characteristics can influence the sensitivity of risk to oil shocks. When conducting panel regression analysis, we document the following findings. First, not all shocks have the same effect on bank risk. Due to oil supply shocks, the increase in oil price raises bank risk, whereas the similar increase in price due to economic expansion or oil-market specific demand reduces that risk. Second, the business model (whether the bank is Islamic or conventional), size, income diversification, profitability, and financial leverage influence the bank risk exposure to oil shocks differently. Third, the two major recent crises (global financial crises and COVID-19 pandemic) magnified bank risk exposure to oil supply shocks and speculative oil demand shocks. Overall, the structural oil shocks explain a large fraction of the variation in financial stability in GCC countries.

Oil prices and the stock market: How COVID-19 impacts oil-importing countries?

This paper focuses on oil-exporting economies and measures the consequences of COVID-19 surgency on the magnitude and persistence of responses of stock markets in these economies to sudden changes in oil prices both before and during the pandemic. By the same token, we depict the significant structural breaks in oil-exporting stock markets over 2013-2021. Our results stipulate a majority of oil-exporting markets have been subject to a major structural break during the pandemic, whereas stock markets in China, Spain, Germany, and Japan experienced structural changes in 2014 and 2018, which are attributed to oil price shock and domestic economic factors, respectively. The results in this paper also find that, in general, the stock markets under consideration have become less responsive to fluctuations in oil price during COVID-19 than they were before its outbreak. Our findings suggest that policy makers in these countries should take further steps toward fostering the transition to alternative energy resources such as solar power and wind in order to make their economies less vulnerable to the global energy market's shocks. © 2022 IEEE.

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

This paper investigates the impact of different oil price shocks on systemic risk under different market conditions. We show that the negative impact of negative oil price shocks on systemic risk is greater than the positive impact of positive oil price shocks. Systemic risk is always negatively affected by oil-specific demand shocks but positively affected by oil supply shocks when the market is under medium and low systemic risk levels. By testing the effect of crises, we find that the influence of positive and negative oil price shocks on systemic risk was declined due to the COVID-19 pandemic. © 2022 Elsevier B.V.

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

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

Is stock market in Sub-Saharan Africa resilient to health shocks?

Purpose This paper aims to examine the impact of health and other exogenous shocks on stock markets in Africa. Particularly, the authors examined the resilience of the major stock markets in 12 African economies during the recent global pandemic. Design/methodology/approach This paper uses the recent panel vector autoregressive model, which enables us to capture the response of stock markets to shocks in COVID-19, commodity markets and exchange rate. For robustness, the authors also analysed the panel Granger causality test. Data was obtained for the period ranging from 2 January 2020 to 31 December 2020. Findings The results show that the growth in COVID-19 cases and deaths do not have any substantial impact on the stock market returns of these economies. In terms of commodity markets, the authors find that gold price has a negative contemporaneous effect on stock returns, but the effect fizzles out around the fifth day while crude oil price, on the other hand, has a significant positive simult aneous impact on stock returns and also converges around the fifth day. The authors further find that the exchange rate has a contemporaneous and nonlinear effect on stock returns and seems to be more dramatic when compared with the other variables. Overall, the results show that stock markets in Africa appear to be flexible and resilient against the COVID-19 outbreak but are affected by other exogenous shocks such as volatile commodity prices and the foreign exchange market. The effect is, however, short-lived - between one to five days. Practical implications Following the study's findings, policies should be put in place to support financial markets by way of hedging against commodity instability and securing domestic currency financing. Policymakers are also recommended to concentrate on managing the uncertainties around their exchange rate markets and develop robust and efficient domestic financial markets to encourage local and foreign investors. Originality/value Several studies have been carried out on the effects of disasters (such as the COVID-19 pandemic) on stock markets, but only a few studies have examined the resilience of stock markets to health and other exogenous shocks. This study's attempt is not only to examine the impact of COVID-19 health shocks on stock markets but also to analyse the resilience of the sampled stock markets. The authors also analyse the resilience of stock markets to commodity markets and exchange rates shocks.

Oil prices volatility and economic performance during COVID-19 and financial crises of 2007-2008.

We examine the time-frequency dynamics of spillovers between oil price shocks and economic performance globally. We use both time and frequency domains simultaneously to find the response of macroeconomic performance to changes in oil prices during the global financial and pandemic crises. Using Wavelet analysis, this seminal study explores the connectedness between oil price shocks and economic activities during COVID-19 and the financial crises of 2008. This study finds that both economic activities and oil prices have shown high power during the period of global financial crises. The recently COVID-19 outbreak indicates significant volatility in economic activities and oil prices during the period of crisis. Moreover, we observe a strong interconnectedness between oil prices and economic activities during global financial crises and COVID-19 crises. We argue that a shock to oil prices in global financial crises and the COVID-19 outbreak has serious repercussions for economic activities. The highest total connectedness between oil prices and economic activities is observed during the COVID-19 outbreak, which advocates that the speed of information transmission amid oil prices and economic activities is greater in the era of the COVID-19 outbreak as compared to other global financial crises. The results of this study have significant implications for policymakers.

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

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