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The dark side of the black gold shock onto Europe: One stock's joy is another stock's sorrow

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  • Kaabia, Olfa
  • Abid, Ilyes
  • Mkaouar, Farid

Abstract

This paper examines the impact of the current oil prices fall on Europe. We estimate a Bayesian shrinkage VAR model and analyse the impulse response functions to investigate the reaction of European stock markets to the current oil prices collapse. Using data covering the March 2002 to May 2014 period, our main result is that European stock markets are negatively and significantly affected by the crude oil shock. We prove that this result is robust to reasonable changes in the Bayesian shrinkage VAR model of the variables order and inclusion of additional variables. The findings shed light that common features exist among the European stock markets. Furthermore, the results highlight that the most exposed stock market is the French one, and that the least affected market is the Austrian one.

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  • Kaabia, Olfa & Abid, Ilyes & Mkaouar, Farid, 2016. "The dark side of the black gold shock onto Europe: One stock's joy is another stock's sorrow," Economic Modelling, Elsevier, vol. 58(C), pages 642-654.
  • Handle: RePEc:eee:ecmode:v:58:y:2016:i:c:p:642-654 DOI: 10.1016/j.econmod.2016.04.001
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    Cited by:

    1. repec:eee:ecmode:v:64:y:2017:i:c:p:82-96 is not listed on IDEAS
    2. Morana, Claudio, 2017. "Macroeconomic and financial effects of oil price shocks: Evidence for the euro area," Economic Modelling, Elsevier, pages 82-96.

    More about this item

    Keywords

    Oil prices shock; European stock markets; Transmission effects; Impulse responses; Bayesian analysis; VAR model;

    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
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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