Do Oil Shocks Affect Financial Stress? Evidence from Oil-Exporting and -Importing Countries

Anirban Sengupta, Debasish Maitra, Saumya Ranjan Dash and Robert Brooks
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Anirban Sengupta: Indian Institute of Management Bodh Gaya, India
Debasish Maitra: Indian Institute of Management Indore (IIM Indore), India
Saumya Ranjan Dash: Indian Institute of Management Indore (IIM Indore), India

American Business Review, 2023, vol. 26, issue 2, 399-430

Abstract: In recent years, there is increasing attention to examining the relationship between oil prices, financial markets, and the economy. Relatively little is known about the dynamic relationship between structural oil shocks and financial market stress of countries, which are majorly dependent on oil price fluctuations. This paper examines the impact of structural oil shocks (oil supply shocks, global aggregate demand shocks, speculative shocks, and other oil shocks) on the financial stress of major oil-exporting and-importing economies. In this study, we construct a financial stress index and using a structural vector autoregression model, we investigate the effects of oil price shocks on the financial stress of major oil-exporting and importing economies. We find evidence that global demand shocks, followed by speculative demand shocks, have significant impacts on financial stress. Furthermore, the US subprime crisis has a significant bearing on the response of the financial stress index to structural oil shocks. The magnitude of oil price shocks on financial stress has subdued during the post-crisis period.

Keywords: Structural Oil Shocks; Financial Stress Index; Financial Crisis (search for similar items in EconPapers)
JEL-codes: C32 C51 E44 E60 Q43 Q48 (search for similar items in EconPapers)
Date: 2023
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