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Spillovers between sovereign yield curve components and oil price shocks

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  • Umar, Zaghum
  • Aharon, David Y.
  • Esparcia, Carlos
  • AlWahedi, Wafa

Abstract

This paper analyzes the static and dynamic relationship between the sovereign yield curves of major oil producing and consuming countries and oil price shocks by disentangling high-frequency oil shocks (risk shocks, demand shocks and supply shocks) and the yield curve components (level, slope, and curvature). Our results show that oil demand and risk shocks and the US yield curve components are the main transmitters of shocks, whereas Japan, Korea and Brazil are the main recipients of shock spillovers. In addition, while the role of several countries is quite clear in terms of spillovers transmission, others switch roles between being transmitters and recipients of shocks. For such countries, monitoring the fluctuations in sovereign debt and oil market shocks is increasingly important to support market stability and create financial resilience to these shocks.

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  • Umar, Zaghum & Aharon, David Y. & Esparcia, Carlos & AlWahedi, Wafa, 2022. "Spillovers between sovereign yield curve components and oil price shocks," Energy Economics, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988322001396
    DOI: 10.1016/j.eneco.2022.105963
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    5. Iania, Leonardo & Lyrio, Marco & Nersisyan, Liana, 2023. "Oil Price Shocks and Bond Risk Premia: Evidence from a Panel of 15 Countries," LIDAM Discussion Papers LFIN 2023002, Université catholique de Louvain, Louvain Finance (LFIN).

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    More about this item

    Keywords

    Spillover; Oil prices; Demand shocks; Supply shocks; Connectedness;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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