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How Do Energy Market Shocks Affect Economic Activity in the US Under Changing Financial Conditions?

In: Applications in Energy Finance

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University)

  • Ojonugwa Usman

    (Istanbul Ticaret University)

  • David Roubaud

    (Montpellier Business School)

Abstract

Credit markets play a crucial role in the propagation of shocks through an economy. Both economic uncertainty and oil market shocks transmit through credit markets to various sectors of an economy. However, the transmission of the shocks depends on the state of an economy as crises periods behave quite differently from normal times. We use a nonlinear vector autoregressive (VAR) model to study the transmission of uncertainty and oil market shocks using monthly data over the 1986:M1–2021:M1 period. The nonlinear VAR model allows the transmission of uncertainty and oil market shocks to a change during financial distress periods. We find that economic uncertainty is closely related to financial conditions and transmission dynamic change during financial crises. Uncertainty shocks are recessionary with a stronger effect during financial distress. Oil supply shocks associated with increasing oil prices are also recessionary and stronger during financial distress while positive demand shocks are expansionary. We find strong asymmetry in responses of macroeconomic aggregates across financial regimes and signs of the shocks.

Suggested Citation

  • Mehmet Balcilar & Ojonugwa Usman & David Roubaud, 2022. "How Do Energy Market Shocks Affect Economic Activity in the US Under Changing Financial Conditions?," Springer Books, in: Christos Floros & Ioannis Chatziantoniou (ed.), Applications in Energy Finance, chapter 0, pages 85-114, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-92957-2_4
    DOI: 10.1007/978-3-030-92957-2_4
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    Citations

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    Cited by:

    1. Rasheed O. Alao & Abdulkareem Alhassan & Saheed Alao & Ifedolapo O. Olanipekun & Godwin O. Olasehinde-Williams & Ojonugwa Usman, 2023. "Symmetric and asymmetric GARCH estimations of the impact of oil price uncertainty on output growth: evidence from the G7," Letters in Spatial and Resource Sciences, Springer, vol. 16(1), pages 1-14, December.
    2. Alola, Andrew Adewale & Özkan, Oktay & Usman, Ojonugwa, 2023. "Examining crude oil price outlook amidst substitute energy price and household energy expenditure in the USA: A novel nonparametric multivariate QQR approach," Energy Economics, Elsevier, vol. 120(C).
    3. Uju Violet Alola & Ojonugwa Usman & Andrew Adewale Alola, 2023. "Is pass-through of the exchange rate to restaurant and hotel prices asymmetric in the US? Role of monetary policy uncertainty," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-19, December.

    More about this item

    Keywords

    Oil prices; Economic activity; Uncertainty; Stochastic volatility; Financial markets; Threshold VARs;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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