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Impacts of oil shocks on stock markets in Norway and Japan: Does monetary policy's effectiveness matter?

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  • Roudari, Soheil
  • Mensi, Walid
  • Kharusi, Sami Al
  • Ahmadian-Yazdi, Farzaneh

Abstract

This paper examines the simultaneous effects of oil shocks on stock markets under different regimes in Norway (as an oil-exporting economy) and Japan (as an oil-importing economy). We use a Structural Threshold VAR model and rely on the monetary policy's effectiveness. Our results show that oil shocks, mainly oil demand shocks, are significantly associated with the oil structure of the country (oil-exporting or oil-importing), channels of the effectiveness of the monetary policy, and the stock market regimes. Furthermore, the channel through which the money supply growth affects Norway's economic growth depends on the stock market regimes. Moreover, the results persist for the money growth-inflation nexus. Similarly, the impact of oil demand shocks depends on the Japanese stock market's regime and the monetary policy's effectiveness. Finally, we find that positive output shocks positively affect the stock markets of both countries in the long run regardless of the stock market conditions. In the short run, a positive inflation shock has a negative (positive) impact on Norway (Japan) during bullish and bearish market conditions.

Suggested Citation

  • Roudari, Soheil & Mensi, Walid & Kharusi, Sami Al & Ahmadian-Yazdi, Farzaneh, 2023. "Impacts of oil shocks on stock markets in Norway and Japan: Does monetary policy's effectiveness matter?," International Economics, Elsevier, vol. 173(C), pages 343-358.
    • Handle: RePEc:eee:inteco:v:173:y:2023:i:c:p:343-358
    DOI: 10.1016/j.inteco.2023.01.006
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    More about this item

    Keywords

    Oil shocks; Stock market; Effectiveness of the monetary policy; TSVAR model;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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