Advertisement

Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries

  • George FilisEmail author
  • Ioannis Chatziantoniou
Original Research

Abstract

In this study, we investigate the financial and monetary policy responses to oil price shocks using a Structural VAR framework. We distinguish between net oil-importing and net oil-exporting countries. Since the 80s, a significant number of empirical studies have been published investigating the effect of oil prices on macroeconomic and financial variables. Most of these studies though, do not make a distinction between oil-importing and oil-exporting economies. Overall, our results indicate that the level of inflation in both net oil-exporting and net oil-importing countries is significantly affected by oil price innovations. Furthermore, we find that the response of interest rates to an oil price shock depends heavily on the monetary policy regime of each country. Finally, stock markets operating in net oil-importing countries exhibit a negative response to increased oil prices. The reverse is true for the stock market of the net oil-exporting countries. We find evidence that the magnitude of stock market responses to oil price shocks is higher for the newly established and/or less liquid stock markets.

Keywords

Structural oil price shocks Monetary policy Stock market returns SVAR 

JEL

C32 E44 E52 G15 Q40 

Notes

Acknowledgments

The authors would like to thank the Editor, Professor Cheng-Few Lee, and the anonymous reviewers for their insightful comments and suggestions on a previous version of this paper. The usual disclaimer applies.

References

  1. Abel AB, Bernanke BS (2001) Macroeconomics. Addison Wesley Longman Inc., New YorkGoogle Scholar
  2. Al-Fayoumi AN (2009) Oil prices and stock market returns in oil importing countries: the case of Turkey, Tunisia and Jordan. Eur J Econ Financ Adm Sci 16:86–101Google Scholar
  3. Apergis N, Miller S (2009) Do structural oil-market shocks affect stock prices? Energ Econ 31:569–575CrossRefGoogle Scholar
  4. Arouri MEH, Nguyen DK (2010) Oil prices, stock markets and portfolio investment: evidence from sector analysis in Europe over the last decade. Energ Econ 31:569–575Google Scholar
  5. Arouri MEH, Rault C (2012) Oil prices and stock markets in GCC countries: empirical evidence from panel analysis. Int J Financ Econ 17(3):242–253CrossRefGoogle Scholar
  6. Bachmeier L (2008) Monetary policy and the transmission of oil shocks. J Macroecon 30:1738–1755CrossRefGoogle Scholar
  7. Barro RJ (1984) Macroeconomics. Wiley, New YorkGoogle Scholar
  8. Barsky RB, Kilian L (2004) Oil and the macroeconomy since the 1970s. J Econ Perspect 18:115–134CrossRefGoogle Scholar
  9. Bashar AZ (2006) Wild oil prices, but brave stock markets! The case of GCC stock markets. Oper Res 6:145–162Google Scholar
  10. Bernanke BS, Gertler M, Watson M (1997) Systematic monetary policy and the effects of oil price shocks. Brookings Pap Econ Act 1:91–148CrossRefGoogle Scholar
  11. Bharn R, Nikolovann B (2010) Global oil prices, oil industry and equity returns: Russian experience. Scott J Polit Econ 57:169–186CrossRefGoogle Scholar
  12. Bjornland HC (2009) Oil price shocks and stock market booms in an oil exporting country. Scott J Polit Econ 2:232–254CrossRefGoogle Scholar
  13. Bjornland HC, Leitemo K (2009) Identifying the interdependence between US monetary policy and the stock market. J Monetary Econ 56:275–282CrossRefGoogle Scholar
  14. Blanchard O, Gali J (2007) The macroeconomic effects of oil price shocks. Why are the 2000s so different than the 1970s? National Bureau of Economic Research, Working Paper 13368Google Scholar
  15. Bohi DR (1989) Energy price shocks and macroeconomic performance. Resources for the Future, Washington, D.C.Google Scholar
  16. Burbridge J, Harrison A (1984) Testing for the effects of oil price rises using vector autoregressions. Int Econ Rev 25:459–484CrossRefGoogle Scholar
  17. Castillo P, Montoro C, Tuesta V (2010) Inflation, oil price volatility and monetary policy. Banco Central de Reserva del Perú, Working Papers 2010-002Google Scholar
  18. Central Bank of Russia (2010) Guidelines for the single state monetary policy in 2010 and for 2011 and 2012. http://www.cbr.ru/eng/today/publications_reports/on_10-eng.pdf. Accessed by 11/12/2012
  19. Chen SS (2010) Do higher oil prices push the stock market into bear territory? Energ Econ 32:490–495CrossRefGoogle Scholar
  20. Chen NF, Roll R, Ross S (1986) Economic forces and the stock market. J Bus 59:383–403CrossRefGoogle Scholar
  21. Ciner C (2001) Energy shocks and financial markets: nonlinear linkages. Stud Nonlinear Dyn E 5:203–212CrossRefGoogle Scholar
  22. Clarida R, Gali J, Gertler M (2000) Monetary policy rules and macroeconomic stability: evidence and some theory. Q J Econ 115:147–180CrossRefGoogle Scholar
  23. Cologni A, Manera M (2008) Oil prices, inflation and interest rates in a structural co-integrated VAR model for the G-7 countries. Energ Econ 30:856–888CrossRefGoogle Scholar
  24. Cong RG, Wei YM, Jiao JL, Fan Y (2008) Relationships between oil price shocks and stock market: an empirical analysis from China. Energ Policy 36:3544–3553CrossRefGoogle Scholar
  25. Cunado J, Perez de Gracia F (2005) Oil prices, economic activity and inflation: evidence for some Asian countries. Q Rev Econ Financ 45:65–83CrossRefGoogle Scholar
  26. DeLong JB (1997) America’s peacetime inflation: the 1970s. In: Romer C, Romer D (eds) Reducing inflation: motivation and strategy. Chicago University Press, ChicagoGoogle Scholar
  27. Driesprong G, Jacobsen B, Maat B (2008) Striking oil: another puzzle? J Financ Econ 89:307–327CrossRefGoogle Scholar
  28. Du L, He Y, Wei C (2010) The relationship between oil price shocks and China’s macro-economy: an empirical analysis. Energ Policy 38:4142–4151CrossRefGoogle Scholar
  29. Elwood SK (2001) Oil-price shocks: beyond standard aggregate demand/aggregate supply analysis. J Econ Educ 32:381–386Google Scholar
  30. Ferderer PJ (1996) Oil price volatility and the macroeconomy. J Macroecon 18:1–26CrossRefGoogle Scholar
  31. Filis G (2010) Macro economy, stock market and oil prices: do meaningful relationships exist among their cyclical fluctuations? Energ Econ 32:877–886CrossRefGoogle Scholar
  32. Filis G, Degiannakis S, Floros C (2011) Dynamic correlation between stock market and oil prices: the case of oil-importing and oil-exporting countries. Int Rev Financ Anal 20(3):152–164CrossRefGoogle Scholar
  33. Flannery MJ, Protopapadakis A (2002) Macroeconomic factors do influence aggregate stock returns. Rev Financ Stud 15:751–781CrossRefGoogle Scholar
  34. Gisser M, Goodwin TH (1986) Crude oil and the macroeconomy: tests of some popular notions. J Money Credit Bank 18:98–103Google Scholar
  35. Gjerde Ø, Sættem F (1999) Causal relations among stock returns and macroeconomic variables in a small, open Economy. J Int Financ Mark Inst Money 9:61–74CrossRefGoogle Scholar
  36. Granville BE, Mallick S (2006) Does inflation or currency depreciation drive monetary policy in Russia? Res Int Bus Financ 20:163–179CrossRefGoogle Scholar
  37. Granville BE, Mallick S (2010) Monetary policy in Russia: identifying exchange rate shocks. Econ Model 27(1):432–444CrossRefGoogle Scholar
  38. Hamilton JD (1983) Oil and the macroeconomy since World War II. J Polit Econ 9:228–248CrossRefGoogle Scholar
  39. Hamilton JD (1988) Are the macroeconomic effects of oil-price changes symmetric? A comment. Carn Roch Conf Ser 28:369–378Google Scholar
  40. Hamilton JD (1996) This is what happened to the oil price-macroeconomy relationship. J Monetary Econ 38:215–220CrossRefGoogle Scholar
  41. Hamilton JD (2008) Understanding crude oil prices. National Bureau of Economic Research, Working Paper 14492Google Scholar
  42. Hamilton JD (2009a) Understanding crude oil prices. Energ J 30:179–206CrossRefGoogle Scholar
  43. Hamilton JD (2009b) Causes and consequences of the oil shock of 2007–08. Brookings Pap Econ Act Spring:215–261Google Scholar
  44. Hamilton JD, Herrera AM (2004) Oil shocks and aggregate macroeconomic behavior: the role of monetary policy. J Money Credit Bank 36:265–286CrossRefGoogle Scholar
  45. Haung RD, Masulis RW, Stoll HR (1996) Energy shocks and financial markets. J Futur Mark 16:1–27CrossRefGoogle Scholar
  46. Hooker MA (2002) Are oil shocks inflationary? Asymmetric and nonlinear specifications versus changes in regime. J Money Credit Bank 34:540–561CrossRefGoogle Scholar
  47. International Energy Agency (2006) World energy outlookGoogle Scholar
  48. Jammazi R, Aloui C (2010) Wavelet decomposition and regime shifts: assessing the effects of crude oil shocks on stock market returns. Energ Policy 38:1415–1435CrossRefGoogle Scholar
  49. Jimenez-Rodriguez R (2009) Oil price shocks and real GDP growth: testing for non-linearity. Energy J 30:1–24CrossRefGoogle Scholar
  50. Jimenez-Rodriguez R, Sanchez M (2005) Oil price shocks and real GDP growth: empirical evidence for some OECD countries. European Central Bank, Working Paper No 362Google Scholar
  51. Jones CM, Kaul G (1996) Oil and stock markets. J Financ 51:463–491CrossRefGoogle Scholar
  52. Jones DW, Lelby PN, Paik IK (2004) Oil price shocks and the macroeconomy: what has been learned since 1996. Energy J 25:1–32CrossRefGoogle Scholar
  53. Kaul G, Seyhun HS (1990) Relative price variability, real shocks and the stocks market. J Financ 45:479–496CrossRefGoogle Scholar
  54. Kilian L (2009) Not all oil price shocks are alike: disentangling demand and supply shocks in the crude oil market. Am Econ Rev 99:1053–1069CrossRefGoogle Scholar
  55. Kilian L, Park C (2009) The impact of oil price shocks on the U.S. stock market. Int Econ Rev 50:1267–1287CrossRefGoogle Scholar
  56. Korhonen I, Ledyaeva S (2010) Trade linkages and macroeconomic effects of the price of oil. Energ Econ 32:848–856CrossRefGoogle Scholar
  57. Laopodis N (2010) Dynamic linkages between monetary policy and the stock market. Rev Quant Financ Account 35:271–293CrossRefGoogle Scholar
  58. LeBlanc M, Chinn MD (2004) Do high oil prices presage inflation? The evidence from G5 countries. Bus Econ 34:38–48Google Scholar
  59. Lee YH, Chiou JS (2011) Oil sensitivity and its asymmetric impact on the stock market. Energy 36:168–174CrossRefGoogle Scholar
  60. Lescaroux F, Mignon V (2009) On the influence of oil prices on economic activity and other macroeconomic and financial variables. OPEC Energy Rev 32(4):343–380CrossRefGoogle Scholar
  61. Maghyereh A (2004) Oil price shocks and emerging stock markets. A generalized VAR approach. Int J Appl Econ Quant Stud 1:27–40Google Scholar
  62. Malik F, Ewing B (2009) Volatility transmission between oil prices and equity sector returns. Int Rev Financ Anal 18:95–100CrossRefGoogle Scholar
  63. Malliaris AG, Malliaris M (2011) Are oil, gold and the euro inter-related? Time series and neural network analysis. Rev Quant Financ Account 40:1–14CrossRefGoogle Scholar
  64. Mendoza O, Vera D (2010) The asymmetric effects of oil shocks on an oil-exporting economy. Cuadernos de Economia 47:3–13Google Scholar
  65. Miller IJ, Ratti RA (2009) Crude oil and stock markets: stability, instability, and bubbles. Energ Econ 31:559–568CrossRefGoogle Scholar
  66. Mohanty SK, Nandha M (2011) Oil shocks and equity returns: an empirical analysis of the US transportation sector. Rev Pac Financ Mark Policies 14(1):101–128CrossRefGoogle Scholar
  67. Mohanty SK, Nandha M, Turkistani AQ, Alaitani MY (2011) Oil price movements and stock market returns: evidence from Gulf Cooperation Council (GCC) countries. Glob Financ J 22(1):42–55CrossRefGoogle Scholar
  68. Mohanty SK, Akhigbe A, Al-Khyal TA, Bugshan T (2012) Oil and stock market activity when prices go up and down: the case of the oil and gas industry. Rev Quant Financ Account. doi: 10.1007/s11156-012-0309-9
  69. Nandha M, Brooks R (2009) Oil prices and transport sector returns: an international analysis. Rev Quant Financ Account 33:393–409CrossRefGoogle Scholar
  70. Nandha M, Faff R (2008) Does oil move equity prices? A global view. Energ Econ 30:986–997CrossRefGoogle Scholar
  71. Oberndorfer U (2009) Energy prices, volatility, and the stock market: evidence from the Eurozone. Energ Policy 37:5787–5795CrossRefGoogle Scholar
  72. O’Neill TJ, Penm J, Terrell RD (2008) The role of higher oil prices: a case of major developed countries. Res Finance 24:287–299CrossRefGoogle Scholar
  73. Papapetrou E (2001) Oil price shocks, stock market, economic activity and employment in Greece. Energ Econ 23:511–532CrossRefGoogle Scholar
  74. Park J, Ratti RA (2008) Oil prices and stock markets in the U.S. and 13 European countries. Energ Econ 30:2587–2608CrossRefGoogle Scholar
  75. Romer CD, Romer DH (1989) Does monetary policy matter? A new test in the spirit of Friedman and Schwartz. University of California at Berkeley Economics, Working Papers 89–107Google Scholar
  76. Sadorsky P (1999) Oil price shocks and stock market activity. Energ Econ 21:449–469CrossRefGoogle Scholar
  77. Siklos P, Kwok B (1999) Stock returns and inflation: a new test of competing hypotheses. Appl Financ Econ 9:567–581CrossRefGoogle Scholar
  78. Tang W, Wu L, Zhang ZX (2010) Oil price shocks and their short- and long-term effects on the Chinese economy. Energ Econ 32:S3–S14CrossRefGoogle Scholar
  79. Terzian P (1985) OPEC the insider story. Zed Books, LondonGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.The Executive Business Centre, Department of Accounting, Finance and EconomicsBournemouth UniversityBournemouthUK
  2. 2.Department of Economics and Finance, Portsmouth Business SchoolUniversity of PortsmouthPortsmouthUK

Personalised recommendations