The impact of oil price shocks on Turkish sovereign yield curve

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Oğuzhan Çepni ◽  
Selçuk Gül ◽  
Muhammed Hasan Yılmaz ◽  
Brian Lucey
Keyword(s):  
Yield Curve ◽  
Structural Var ◽  
Oil Price ◽  
Inflation Expectations ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Demand Shocks ◽  
Content Type ◽  
Identification Scheme ◽  
The Impact

PurposeThis paper aims to investigate the impact of oil price shocks on the Turkish sovereign yield curve factors.Design/methodology/approachTo extract the latent factors (level, slope and curvature) of the Turkish sovereign yield curve, we estimate conventional Nelson and Siegel (1987) model with nonlinear least squares. Then, we decompose oil price shocks into supply, demand and risk shocks using structural VAR (structural VAR) models. After this separation, we apply Engle (2002) dynamic conditional correlation GARCH (DCC-GARCH (1,1)) method to investigate time-varying co-movements between yield curve factors and oil price shocks. Finally, using the LP (local projections) proposed by Jorda (2005), we estimate the impulse-response functions to examine the impact of different oil price shocks on yield curve factors.FindingsOur results demonstrate that the various oil price shocks influence the yield curve factors quite differently. A supply shock leads to a statistically significant increase in the level factor. This result shows that elevated oil prices due to supply disruptions are interpreted as a signal of a surge in inflation expectations since the cost channel prevails. Besides, unanticipated demand shocks have a positive impact on the slope factor as a result of the central bank policy response for offsetting the elevated inflation expectations. Finally, a risk shock is associated with a decrease in the curvature factor indicating that risk shocks influence the medium-term bonds due to the deflationary pressure resulting from depressed economic conditions.Practical implicationsOur results provide new insights to understand the driving forces of yield curve movements induced by various oil shocks to formulate appropriate policy responses.Originality/valueThe study contributes to the literature by two main dimensions. First, the recent oil shock identification scheme of Ready (2018) is modified using the “geopolitical oil price risk index” to capture the changes in the risk perceptions of oil markets driven by geopolitical tensions such as terrorism and conflicts and sanctions. The modified identification scheme attributes more power to demand shocks in explaining the variation of the oil price compared to that of the baseline scheme. Second, it provides recent evidence that distinguishes the impact of oil demand and supply shocks on Turkey's yield curve.

The Impact of Oil Price Shocks on Turkish Sovereign Yield Curve

2020 ◽  
Author(s):  
Oguzhan Cepni ◽  
Selcuk Gul ◽  
Brian M. Lucey ◽  
Muhammed Hasan Yilmaz
Keyword(s):  
Yield Curve ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
The Impact

Exploring the inflationary effect of oil price in the US

2019 ◽  
Vol 13 (1) ◽  
pp. 60-76 ◽  
Author(s):  
Amine Lahiani
Keyword(s):  
Growth Rate ◽  
Structural Breaks ◽  
Oil Prices ◽  
Oil Price ◽  
Inflation Expectations ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Content Type ◽  
The Us ◽  
The Relationship

PurposeThe purpose of this paper is to explore the effect of oil price shocks on the US Consumer Price Index over the monthly period from 1876:01 to 2014:04.Design/methodology/approachThe author uses the Bai and Perron (2003) structural break test to split the data sample into sub-periods delimited by the computed break dates. Afterwards, the author uses the quantile treatment effects over the full sample and then, by including sub-periods dummies to accommodate the selected structural breaks that drive the relationship between inflation and oil price growth.FindingsThe findings include a decreased transmission effect of oil price changes on inflation in recent years; a varied elasticity of inflation to the growth rate of oil prices across the distribution; and, finally, evidence of asymmetry in the relationship between the growth rate of oil prices and inflation, with a higher transmission mechanism for decreasing rather than increasing oil prices.Practical implicationsPolicymakers should remain alert to monitoring potential inflation increases and should take precautionary measures to anchor inflation expectations, because inflation reacts differently to positive and negative oil price shocks. Moreover, authorities should consider the asymmetric reaction of inflation to oil price shocks to adopt an appropriate monetary policy strategy to achieve the price stability target.Originality/valueThe paper used a quantile regression model with structural breaks, which has not yet been used in the literature.

scholarly journals Inflation Expectations and the Pass-Through of Oil Prices

2021 ◽  
pp. 1-26
Author(s):  
Knut Are Aastveit ◽  
Hilde C. Bjørnland ◽  
Jamie L. Cross
Keyword(s):  
Oil Prices ◽  
Structural Var ◽  
Oil Price ◽  
Inflation Expectations ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Demand And Supply ◽  
The Great Recession ◽  
Oil Market ◽  
Pass Through

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.

Further insights into the oil and equity market relationship

2019 ◽  
Vol 36 (2) ◽  
pp. 291-310 ◽  
Author(s):  
Olfa Belhassine ◽  
Amira Ben Bouzid
Keyword(s):  
Stock Market ◽  
Price Volatility ◽  
Oil Price ◽  
Subprime Crisis ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Content Type ◽  
Asymmetric Effects ◽  
Oil Price Volatility ◽  
The Impact

Purpose This paper aims to assess the asymmetric effects of oil price shocks and the impact of oil price volatility on the Eurozone’s supersector returns, with a particular emphasis on the impact of the subprime crisis and the euro debt crisis (EDC) on this relationship. Design/methodology/approach Empirical data consist of daily observations of the 19 EURO STOXX supersector indices and the Brent crude oil price index for the period January 2001 to August 2015. This paper uses a non-linear multifactor market model. This model accounts for heteroscedasticity and breakpoints that are identified by the Bai and Perron (1998, 2003) tests. Findings The results show that supersector returns are sensitive to oil price shocks. However, in most cases, their responsiveness to oil price volatility is not significant. The relationship between oil price shocks and supersector returns changes through time and depends on the sector. Financial turbulence affects the oil-stock market nexus. In most cases, the subprime crisis has had a positive impact on the oil-stock market relationship, whereas the EDC has had an overall negative effect. Before the subprime crisis, there is an evidence of asymmetric effects for some supersectors. Meanwhile, for most sectors, the asymmetric effects disappear after 2008. Originality/value The study improves understanding of the interaction between oil price risk and the Eurozone sector indices returns. Furthermore, it enables global investors to manage the risk inherent to the portfolio managers’ positions.

Demand, supply, monetary policy, and oil price shocks in the Russian economy (Analysis based on the BVAR model with sign restrictions)

2020 ◽  
pp. 83-104
Author(s):  
D. A. Lomonosov ◽  
A. V. Polbin ◽  
N. D. Fokin
Keyword(s):  
Monetary Policy ◽  
Positive Impact ◽  
Oil Price ◽  
Monetary Shocks ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Demand Shocks ◽  
Russian Economy ◽  
Sign Restrictions ◽  
The Impact

This paper considers a simple Bayesian vector autoregressive model for the Russian economy based on data for real GDP, GDP deflator and oil price as an exogenous variable that acts as a proxy variable for the terms of trade. Along with the impact of oil price shocks, the model estimates the impact of supply and demand shocks, the identification of which is based on the approach of sign restrictions. According to the results obtained, at the end of 2014 and in 2015, demand shocks had a positive impact on GDP growth, which can be interpreted as a positive effect of the ruble devaluation at the end of 2014. In the next years, demand shocks led mainly to a slowdown in economic growth. The paper also attempts to identify monetary policy shocks and assesses their impact on GDP, household consumption and investment. According to the results, the effect of monetary shocks in 2015—2019 on all endogenous variables was negative. However, an increase in the interest rate at the end of 2014 is identified mostly as an endogenous reaction to other shocks, and the effect of the monetary shock on GDP in 2015 is nearly zero. In 2017, monetary shocks slowed down GDP by 0.92 percentage points.

The impact of oil price shocks on capital spending in the oil and gas industry

2018 ◽  
Vol 44 (11) ◽  
pp. 1347-1363
Author(s):  
Zahid Iqbal ◽  
Shekar Shetty
Keyword(s):  
Oil And Gas ◽  
Oil And Gas Industry ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Gas Industry ◽  
Content Type ◽  
Capital Spending ◽  
Growth Prospects ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of oil price shocks on capital spending in relation to the following firm characteristics: firm size, debt ratio, growth prospects, earnings and key sectors of the oil and gas industry. Design/methodology/approach To examine the impact of oil price changes on each of the sample firm’s capital spending, the authors utilize a vector autoregressive (VAR) framework which requires that the oil price and the firm’s capital spending series are stationary. The authors employ the Augmented Dickey–Fuller (ADF) procedure to test if these series are stationary in levels or in their first difference. Since the results show that the ADF values for adjusted oil price and for all but one capital spending series are stationary, the authors perform VAR analysis using the level data. Findings The impulse response results show that there is a positive relationship between oil price shocks and capital spending by the oil and gas firms. In other words, the oil and gas firms reduce (increase) capital spending when oil prices fall (rise). The responses are highest around q3. Additionally, the responses are stronger for the exploration and production, drilling, and oil services firms, and weaker for the refining firms (oil majors). Also, the small, low-earnings and low p/e firms exhibit the highest responses to oil price shocks. The impulse response results for the debt quartiles are inconclusive. Practical implications The findings shed light into the impact of oil price shocks on capital spending in relation to firm characteristics. The impulse response results that capital spending of the E&P, drilling and oil services firms, and the small firms in general, have a higher positive impact of oil shocks lend support to the argument that these firms more likely reduce capital spending because of financial constraints in the capital markets. A higher positive response by the low return on assets firms indicates that firms with low earnings and cash flow problems are more likely to reduce their capital spending when oil price drops. With regard to growth prospects, it appears that shocks in oil price dampen the outlook for the low p/e firms, which leads to a cut in their capital spending. On the other hand, the high p/e firms seem to rely more on their growth prospects and downplay the adverse impact of oil price shocks. Originality/value Unlike previous studies in this area, the study focuses on firm-level data in detail, uses quarterly data and uses firm-specific variables that explain impact of oil price shocks on capital spending in oil and gas industry.

scholarly journals Do the stock returns of clean energy corporations respond to oil price shocks and policy uncertainty?

2020 ◽  
Vol 9 (1) ◽  
Author(s):  
Xiaohui Zhao
Keyword(s):  
Stock Returns ◽  
Clean Energy ◽  
Oil Price ◽  
Policy Uncertainty ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Demand Shocks ◽  
Supply Shocks ◽  
Energy Companies ◽  
The Impact

Abstract This paper investigates the effects of oil price shocks and policy uncertainty on the stock returns of clean energy companies. We use a structural vector autoregressive (VAR) model to separate demand and supply shocks in the global crude oil market from 2001 to 2018. We find that oil supply shocks and aggregated demand shocks have a positive effect on the returns of clean energy companies, while policy uncertainty shocks and oil-specific-demand shocks have a negative effect. The impacts of these shocks are shown to last relatively long. Moreover, the effects of oil shocks on the clean energy stock returns are amplified by adding policy uncertainty as an endogenously driven factor to the model. The impact of policy uncertainty is mainly transmitted through the uncertainty of inflation.

Monetary policy and the effect of the transfer of oil prices to inflation

2020 ◽  
pp. 41-50
Author(s):  
Ph. S. Kartaev ◽  
I. D. Medvedev
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Dynamic Models ◽  
Oil Prices ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Negative Effects ◽  
Price Shocks ◽  
Policy Regime ◽  
The Impact

The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for the period from 2000 to 2017. It is shown that mainly the impact of changes in oil prices on inflation is carried out through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the transfer of oil prices, limiting negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger transfer, helping to reduce inflation.

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