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Effect of Oil Price Shocks in the U.S. for 1985-2004, using VAR, Mixed Dynamic and Granger Causality Approaches

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  • Al-Rjoub, S.

Abstract

This paper uses bivariate VAR, Mixed Dynamic and Granger Causality Approaches, to analyze the news effect of oil prices on the stock market index in the U.S during the recent oil price hikes from the late eighties up to date. All used models show similar evidence. They suggest that oil shock negatively affect the stock market returns in the U.S. Oil prices granger cause movements in the stock market index. The Stock market index will absorb the information of oil price shocks and incorporate it into the stock price instantaneously. Oil price shocks have an immediate negative effect on the U.S stock market.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 5 (2005)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:5:y:2005:i:3_4

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Related research

Keywords: Oil shocks; Stock market reaction;

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  1. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  2. Guisan, M.Carmen, 2003. "Causality Tests, Interdependence and Model Selection: Aplication to OECD countries 1960-97," Economic Development 63, University of Santiago de Compostela. Faculty of Economics and Business. Econometrics..
  3. Juncal Cuñado & Fernando Pérez de Gracia, 2001. "Do oil price shocks matter? Evidence for some European countries," Working Papers 01-02, Asociación Española de Economía y Finanzas Internacionales.
  4. Guisan, M.Carmen, 2001. "Causality and Cointegration between Consumption and GDP in 25 OECD countries: limitations of cointegration approach," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 1(1), pages 39-61.
  5. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
  6. John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers 1982-01, University of Adelaide, School of Economics.
  7. Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, vol. 23(5), pages 511-532, September.
  8. King, Robert G & Plosser, Charles I, 1984. "Money, Credit, and Prices in a Real Business Cycle," American Economic Review, American Economic Association, vol. 74(3), pages 363-80, June.
  9. Gisser, Micha & Goodwin, Thomas H, 1986. "Crude Oil and the Macroeconomy: Tests of Some Popular Notions: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 95-103, February.
  10. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
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