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Oil Shocks, External Adjustment, and Country Portfolio

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  • LIUGANG SHENG
  • HONGYAN ZHAO

Abstract

This study examines the intertemporal nature of countries’ external adjustment by using two oil income shocks with different timings: giant oil discovery news shocks and contemporaneous oil revenue shocks from international oil price changes. Empirical estimates using a large panel of countries support the intertemporal theory. Net foreign assets hike immediately upon oil revenue shocks, but decline for the first 5 years after oil discoveries and rebound subsequently. These adjustments are largely through the current account but partially stabilized by valuation effects for oil revenue shocks. Oil discoveries attract FDI inflows, while oil revenue shocks increase foreign debt assets holdings.

Suggested Citation

  • Liugang Sheng & Hongyan Zhao, 2024. "Oil Shocks, External Adjustment, and Country Portfolio," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(7), pages 1705-1736, October.
    • Handle: RePEc:wly:jmoncb:v:56:y:2024:i:7:p:1705-1736
    DOI: 10.1111/jmcb.13093
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