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Cyclical properties of supply-side and demand-side shocks in oil-based commodity markets

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  • Tomas Krehlik
  • Jozef Barunik

Abstract

Oil markets profoundly influence world economies through determination of prices of energy and transports. Using novel methodology devised in frequency domain, we study the information transmission mechanisms in oil-based commodity markets. Taking crude oil as a supply-side benchmark and heating oil and gasoline as demand-side benchmarks, we document new stylized facts about cyclical properties of the transmission mechanism generated by volatility shocks with heterogeneous frequency responses. Our first key finding is that shocks to volatility with response shorter than one week are increasingly important to the transmission mechanism over the studied period. Second, demand-side shocks to volatility are becoming increasingly important in creating short-run connectedness. Third, the supply-side shocks to volatility resonating in both the long run and short run are important sources of connectedness.

Suggested Citation

  • Tomas Krehlik & Jozef Barunik, 2016. "Cyclical properties of supply-side and demand-side shocks in oil-based commodity markets," Papers 1603.07020, arXiv.org, revised Jan 2017.
  • Handle: RePEc:arx:papers:1603.07020
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    Cited by:

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    2. Geng, Jiang-Bo & Chen, Fu-Rui & Ji, Qiang & Liu, Bing-Yue, 2021. "Network connectedness between natural gas markets, uncertainty and stock markets," Energy Economics, Elsevier, vol. 95(C).
    3. Lovcha, Yuliya & Perez-Laborda, Alejandro, 2020. "Dynamic frequency connectedness between oil and natural gas volatilities," Economic Modelling, Elsevier, vol. 84(C), pages 181-189.
    4. Chien-Fu Chen & Shu-hen Chiang, 2020. "Time-varying spillovers among first-tier housing markets in China," Urban Studies, Urban Studies Journal Limited, vol. 57(4), pages 844-864, March.
    5. Alam, Md. Samsul & Shahzad, Syed Jawad Hussain & Ferrer, Román, 2019. "Causal flows between oil and forex markets using high-frequency data: Asymmetries from good and bad volatility," Energy Economics, Elsevier, vol. 84(C).
    6. Gehrke, Britta & Yao, Fang, 2017. "Are supply shocks important for real exchange rates? A fresh view from the frequency-domain," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 99-114.
    7. Umar, Zaghum & Nasreen, Samia & Solarin, Sakiru Adebola & Tiwari, Aviral Kumar, 2019. "Exploring the time and frequency domain connectedness of oil prices and metal prices," Resources Policy, Elsevier, vol. 64(C).
    8. Ferrer, Román & Shahzad, Syed Jawad Hussain & López, Raquel & Jareño, Francisco, 2018. "Time and frequency dynamics of connectedness between renewable energy stocks and crude oil prices," Energy Economics, Elsevier, vol. 76(C), pages 1-20.
    9. Niu, Hongli, 2021. "Correlations between crude oil and stocks prices of renewable energy and technology companies: A multiscale time-dependent analysis," Energy, Elsevier, vol. 221(C).

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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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