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

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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.

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Notes

  1. The UK is classified as a net oil importer based on its current status. We need to consider though, that for most part of the sample period the country was a net oil-exporter. This draws a distinction between the UK and the remaining six net oil-importing countries of the sample. We further consider this distinction in the analysis of the empirical findings. .

  2. Results can be obtained upon request.

  3. Ibid.

  4. We do not consider any available data prior to 1996, as during this time Russia was in a transition period, which was characterised by a volatile behaviour of the variables under consideration. This is in line with Granville and Mallick (2010).

  5. Data availability issues have imposed constraints to our sample period.

  6. Exchange rates were collected from Pacific Exchange Rate Service.

  7. The actual VAR(6) coefficient tables are available upon request.

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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.

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Authors and Affiliations

  1. The Executive Business Centre, Department of Accounting, Finance and Economics, Bournemouth University, 89 Holdenhurst Road, Bournemouth, BH8 8EB, UK

    George Filis

  2. Department of Economics and Finance, Portsmouth Business School, University of Portsmouth, Richmond Building, Portland Street, Portsmouth, PO1 3DE, UK

    Ioannis Chatziantoniou

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Correspondence to George Filis.

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Filis, G., Chatziantoniou, I. Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries. Rev Quant Finan Acc 42, 709–729 (2014). https://doi.org/10.1007/s11156-013-0359-7

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