IDEAS home Printed from https://ideas.repec.org/p/bam/wpaper/bafes25.html

Responses of macroeconomy and stock markets to structural oil price shocks: New evidence from Asian oil refinery

Author

Listed:
  • Hong Thai Le

    (Department of Accounting, Finance and Economics, Bournemouth University)

  • Marta Disegna

    (Department of Accounting, Finance and Economics, Bournemouth University)

Abstract

In extensive oil-related literature, less attention has been paid to Asia and particularly little evidence is known for oil-refining countries. This paper examines how the economy of an oil-refining country reacts to an oil price shock and performs cross-country comparisons with oil-exporting and oil-importing countries. Singapore (oil refiner), Japan (oil importer), and Malaysia (oil exporter) have been analysed through a SVAR model using both macroeconomic and financial variables. Results show limited reactions of both macroeconomic indicators and stock returns to an oil supply shock and an oil aggregate demand shock negatively impacts economic activities. Our findings reveal that the country’s status in the oil market matters is important when an oil specific demand shock is analysed. Our findings inform policymakers of the effectiveness of using monetary policy tools such as interest rate and exchange rate to mitigate the adverse effects of an oil price shock.

Suggested Citation

  • Hong Thai Le & Marta Disegna, 2018. "Responses of macroeconomy and stock markets to structural oil price shocks: New evidence from Asian oil refinery," BAFES Working Papers BAFES25, Department of Accounting, Finance & Economic, Bournemouth University.
    • Handle: RePEc:bam:wpaper:bafes25
    as

    Download full text from publisher

    File URL: https://repec.bmth.ac.uk/bam/wp/BAFES25.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ying Huang & Feng Guo, 2008. "Macro shocks and the Japanese stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 18(17), pages 1391-1400.
    2. Ramaprasad Bhar & Biljana Nikolova, 2009. "Oil Prices and Equity Returns in the BRIC Countries," The World Economy, Wiley Blackwell, vol. 32(7), pages 1036-1054, July.
    3. Mansor H. Ibrahim & Kanokwan Chancharoenchai, 2014. "How inflationary are oil price hikes? A disaggregated look at Thailand using symmetric and asymmetric cointegration models," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(3), pages 409-422, July.
    4. Chen, Wang & Hamori, Shigeyuki & Kinkyo, Takuji, 2014. "Macroeconomic impacts of oil prices and underlying financial shocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 1-12.
    5. Miller, J. Isaac & Ratti, Ronald A., 2009. "Crude oil and stock markets: Stability, instability, and bubbles," Energy Economics, Elsevier, vol. 31(4), pages 559-568, July.
    6. Cai, Xiao Jing & Tian, Shuairu & Yuan, Nannan & Hamori, Shigeyuki, 2017. "Interdependence between oil and East Asian stock markets: Evidence from wavelet coherence analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 206-223.
    7. Le, Thai-Ha & Chang, Youngho, 2015. "Effects of oil price shocks on the stock market performance: Do nature of shocks and economies matter?," Energy Economics, Elsevier, vol. 51(C), pages 261-274.
    8. Hutchison, Michael M., 1993. "Structural change and the macroeconomic effects of oil shocks: empirical evidence from the United States and Japan," Journal of International Money and Finance, Elsevier, vol. 12(6), pages 587-606, December.
    9. Wee Chian Koh, 2017. "The effects of macroeconomic shocks on the Brunei economy: a sign restriction approach," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(3), pages 414-428, July.
    10. Lardic, Sandrine & Mignon, Valerie, 2006. "The impact of oil prices on GDP in European countries: An empirical investigation based on asymmetric cointegration," Energy Policy, Elsevier, vol. 34(18), pages 3910-3915, December.
    11. Cunado, J. & Perez de Gracia, F., 2005. "Oil prices, economic activity and inflation: evidence for some Asian countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 65-83, February.
    12. Kim, Won Joong & Hammoudeh, Shawkat & Hyun, Jun Seog & Gupta, Rangan, 2017. "Oil price shocks and China's economy: Reactions of the monetary policy to oil price shocks," Energy Economics, Elsevier, vol. 62(C), pages 61-69.
    13. Lutz Kilian & Cheolbeom Park, 2009. "The Impact Of Oil Price Shocks On The U.S. Stock Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1267-1287, November.
    14. Park, Jungwook & Ratti, Ronald A., 2008. "Oil price shocks and stock markets in the U.S. and 13 European countries," Energy Economics, Elsevier, vol. 30(5), pages 2587-2608, September.
    15. Ali Ahmed, Huson Joher & Wadud, I.K.M. Mokhtarul, 2011. "Role of oil price shocks on macroeconomic activities: An SVAR approach to the Malaysian economy and monetary responses," Energy Policy, Elsevier, vol. 39(12), pages 8062-8069.
    16. Tang, Weiqi & Wu, Libo & Zhang, ZhongXiang, 2010. "Oil price shocks and their short- and long-term effects on the Chinese economy," Energy Economics, Elsevier, vol. 32(Supplemen), pages 3-14, September.
    17. Yang, Lu & Cai, Xiao Jing & Hamori, Shigeyuki, 2017. "Does the crude oil price influence the exchange rates of oil-importing and oil-exporting countries differently? A wavelet coherence analysis," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 536-547.
    18. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    19. Engemann, Kristie M. & Kliesen, Kevin L. & Owyang, Michael T., 2011. "Do Oil Shocks Drive Business Cycles? Some U.S. And International Evidence," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S3), pages 498-517, November.
    20. You, Wanhai & Guo, Yawei & Zhu, Huiming & Tang, Yong, 2017. "Oil price shocks, economic policy uncertainty and industry stock returns in China: Asymmetric effects with quantile regression," Energy Economics, Elsevier, vol. 68(C), pages 1-18.
    21. Cong, Rong-Gang & Wei, Yi-Ming & Jiao, Jian-Lin & Fan, Ying, 2008. "Relationships between oil price shocks and stock market: An empirical analysis from China," Energy Policy, Elsevier, vol. 36(9), pages 3544-3553, September.
    22. Ding, Zhihua & Liu, Zhenhua & Zhang, Yuejun & Long, Ruyin, 2017. "The contagion effect of international crude oil price fluctuations on Chinese stock market investor sentiment," Applied Energy, Elsevier, vol. 187(C), pages 27-36.
    23. Mohanty, Sunil K. & Nandha, Mohan & Turkistani, Abdullah Q. & Alaitani, Muhammed Y., 2011. "Oil price movements and stock market returns: Evidence from Gulf Cooperation Council (GCC) countries," Global Finance Journal, Elsevier, vol. 22(1), pages 42-55.
    24. Zhu, Hui-Ming & Li, Rong & Li, Sufang, 2014. "Modelling dynamic dependence between crude oil prices and Asia-Pacific stock market returns," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 208-223.
    25. Francesco Lippi & Andrea Nobili, 2012. "Oil And The Macroeconomy: A Quantitative Structural Analysis," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1059-1083, October.
    26. Apergis, Nicholas & Miller, Stephen M., 2009. "Do structural oil-market shocks affect stock prices?," Energy Economics, Elsevier, vol. 31(4), pages 569-575, July.
    27. Wang, Yudong & Wu, Chongfeng & Yang, Li, 2013. "Oil price shocks and stock market activities: Evidence from oil-importing and oil-exporting countries," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1220-1239.
    28. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    29. Cross, Jamie & Nguyen, Bao H., 2017. "The relationship between global oil price shocks and China's output: A time-varying analysis," Energy Economics, Elsevier, vol. 62(C), pages 79-91.
    30. Peersman, Gert & Van Robays, Ine, 2012. "Cross-country differences in the effects of oil shocks," Energy Economics, Elsevier, vol. 34(5), pages 1532-1547.
    31. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-1069, June.
    32. Papapetrou, Evangelia, 2001. "Oil price shocks, stock market, economic activity and employment in Greece," Energy Economics, Elsevier, vol. 23(5), pages 511-532, September.
    33. repec:aen:journl:ej34-2-07 is not listed on IDEAS
    34. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
    35. Knut Are Aastveit & Hilde C. Bjørnland & Leif Anders Thorsrud, 2015. "What Drives Oil Prices? Emerging Versus Developed Economies," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 30(7), pages 1013-1028, November.
    36. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-484, June.
    37. Hilde C. Bjørnland, 2009. "Oil Price Shocks And Stock Market Booms In An Oil Exporting Country," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 232-254, May.
    38. Chen, Shiu-Sheng, 2010. "Do higher oil prices push the stock market into bear territory?," Energy Economics, Elsevier, vol. 32(2), pages 490-495, March.
    39. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    40. Sek, Siok Kun, 2017. "Impact of oil price changes on domestic price inflation at disaggregated levels: Evidence from linear and nonlinear ARDL modeling," Energy, Elsevier, vol. 130(C), pages 204-217.
    41. Le, Thai-Ha & Chang, Youngho, 2013. "Oil price shocks and trade imbalances," Energy Economics, Elsevier, vol. 36(C), pages 78-96.
    42. Cunado, Juncal & Jo, Soojin & Perez de Gracia, Fernando, 2015. "Macroeconomic impacts of oil price shocks in Asian economies," Energy Policy, Elsevier, vol. 86(C), pages 867-879.
    43. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
    44. George Filis & Ioannis Chatziantoniou, 2014. "Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries," Review of Quantitative Finance and Accounting, Springer, vol. 42(4), pages 709-729, May.
    45. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.
    46. Narayan, Paresh Kumar & Narayan, Seema, 2010. "Modelling the impact of oil prices on Vietnam's stock prices," Applied Energy, Elsevier, vol. 87(1), pages 356-361, January.
    47. Jones, Charles M & Kaul, Gautam, 1996. "Oil and the Stock Markets," Journal of Finance, American Finance Association, vol. 51(2), pages 463-491, June.
    48. Abeysinghe, Tilak, 2001. "Estimation of direct and indirect impact of oil price on growth," Economics Letters, Elsevier, vol. 73(2), pages 147-153, November.
    49. Farhad Taghizadeh-Hesary & Naoyuki Yoshino & Majid Mohammadi Hossein Abadi & Rosa Farboudmanesh, 2016. "Response of macro variables of emerging and developed oil importers to oil price movements," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 21(1), pages 91-102, January.
    50. Omar Mendoza & David Vera, 2010. "The Asymmetric Effects of Oil Shocks on an Oil-exporting Economy," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 47(135), pages 3-13.
    51. Brown, Stephen P. A. & Yucel, Mine K., 2002. "Energy prices and aggregate economic activity: an interpretative survey," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 193-208.
    52. Bachmeier, Lance, 2008. "Monetary policy and the transmission of oil shocks," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1738-1755, December.
    53. Cologni, Alessandro & Manera, Matteo, 2008. "Oil prices, inflation and interest rates in a structural cointegrated VAR model for the G-7 countries," Energy Economics, Elsevier, vol. 30(3), pages 856-888, May.
    54. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011. "Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies," The World Economy, Wiley Blackwell, vol. 34(9), pages 1557-1592, September.
    55. Mohamed El Hedi Arouri & Christophe Rault, 2012. "Oil Prices And Stock Markets In Gcc Countries: Empirical Evidence From Panel Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 242-253, July.
    56. Asteriou, Dimitrios & Bashmakova, Yuliya, 2013. "Assessing the impact of oil returns on emerging stock markets: A panel data approach for ten Central and Eastern European Countries," Energy Economics, Elsevier, vol. 38(C), pages 204-211.
    57. Shuddhasattwa Rafiq & Ruhul Salim, 2014. "Does oil price volatility matter for Asian emerging economies?," Economic Analysis and Policy, Elsevier, vol. 44(4), pages 417-441.
    58. Vu, Tuan Khai & Nakata, Hayato, 2018. "Oil price fluctuations and the small open economies of Southeast Asia: An analysis using vector autoregression with block exogeneity," Journal of Asian Economics, Elsevier, vol. 54(C), pages 1-21.
    59. Ayres, Robert & Voudouris, Vlasios, 2014. "The economic growth enigma: Capital, labour and useful energy?," Energy Policy, Elsevier, vol. 64(C), pages 16-28.
    60. repec:aen:journl:2004v25-02-a01 is not listed on IDEAS
    61. Chang, Youngho & Wong, Joon Fong, 2003. "Oil price fluctuations and Singapore economy," Energy Policy, Elsevier, vol. 31(11), pages 1151-1165, September.
    62. Komain Jiranyakul, 2015. "Oil Price Volatility and Real Effective Exchange Rate: The Case of Thailand," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 574-579.
    63. François Lescaroux & Valérie Mignon, 2008. "On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables," Working Papers 2008-05, CEPII research center.
    64. Javed Ahmad Bhat & Aadil Ahmad ganaie & Naresh Kumar Sharma, 2018. "Macroeconomic Response to Oil and Food Price Shocks: A Structural VAR Approach to the Indian Economy," International Economic Journal, Taylor & Francis Journals, vol. 32(1), pages 66-90, January.
    65. Ciner Cetin, 2001. "Energy Shocks and Financial Markets: Nonlinear Linkages," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(3), pages 1-11, October.
    66. repec:aen:journl:2009v30-02-a09 is not listed on IDEAS
    67. Du, Limin & Yanan, He & Wei, Chu, 2010. "The relationship between oil price shocks and China's macro-economy: An empirical analysis," Energy Policy, Elsevier, vol. 38(8), pages 4142-4151, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angelidis, Timotheos & Degiannakis, Stavros & Filis, George, 2015. "US stock market regimes and oil price shocks," Global Finance Journal, Elsevier, vol. 28(C), pages 132-146.
    2. George Filis & Ioannis Chatziantoniou, 2014. "Financial and monetary policy responses to oil price shocks: evidence from oil-importing and oil-exporting countries," Review of Quantitative Finance and Accounting, Springer, vol. 42(4), pages 709-729, May.
    3. Stavros Degiannakis & George Filis & Vipin Arora, 2018. "Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence," The Energy Journal, , vol. 39(5), pages 85-130, September.
    4. Smyth, Russell & Narayan, Paresh Kumar, 2018. "What do we know about oil prices and stock returns?," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 148-156.
    5. Singhal, Shelly & Ghosh, Sajal, 2016. "Returns and volatility linkages between international crude oil price, metal and other stock indices in India: Evidence from VAR-DCC-GARCH models," Resources Policy, Elsevier, vol. 50(C), pages 276-288.
    6. Broadstock, David C. & Filis, George, 2014. "Oil price shocks and stock market returns: New evidence from the United States and China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 417-433.
    7. repec:aen:journl:ej39-5-filis is not listed on IDEAS
    8. Filis, George & Degiannakis, Stavros & Floros, Christos, 2011. "Dynamic correlation between stock market and oil prices: The case of oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 152-164, June.
    9. Heidari, Hassan & Ebrahimi Torki, Mahyar & Babaei Balderlou, Saharnaz, 2015. "How Do Different Oil Price Shocks Affect the Relationship Between Oil and Stock Markets?," MPRA Paper 80273, University Library of Munich, Germany, revised 24 Dec 2016.
    10. Degiannakis, Stavros & Filis, George & Floros, Christos, 2013. "Oil and stock returns: Evidence from European industrial sector indices in a time-varying environment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 175-191.
    11. Suliman Zakaria S. Abdalla, 2014. "The Impact of Oil Price Fluctuations on the Sudanese Stock Market Performance," Working Papers 887, Economic Research Forum, revised Dec 2014.
    12. Lang, Korbinian & Auer, Benjamin R., 2020. "The economic and financial properties of crude oil: A review," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    13. Degiannakis, Stavros & Filis, George & Floros, Christos, 2013. "Oil and stock price returns: Evidence from European industrial sector indices in a time-varying environment," MPRA Paper 80495, University Library of Munich, Germany.
    14. Manel Youssef & Khaled Mokni, 2019. "Do Crude Oil Prices Drive the Relationship between Stock Markets of Oil-Importing and Oil-Exporting Countries?," Economies, MDPI, vol. 7(3), pages 1-22, July.
    15. Mishra, Shekhar & Mishra, Sibanjan, 2021. "Are Indian sectoral indices oil shock prone? An empirical evaluation," Resources Policy, Elsevier, vol. 70(C).
    16. Boldanov, Rustam & Degiannakis, Stavros & Filis, George, 2016. "Time-varying correlation between oil and stock market volatilities: Evidence from oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 209-220.
    17. Ziadat, Salem Adel & McMillan, David G. & Herbst, Patrick, 2022. "Oil shocks and equity returns during bull and bear markets: The case of oil importing and exporting nations," Resources Policy, Elsevier, vol. 75(C).
    18. Sunil K. Mohanty & Joseph Onochie & Abdulrahman F. Alshehri, 2018. "Asymmetric effects of oil shocks on stock market returns in Saudi Arabia: evidence from industry level analysis," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 595-619, October.
    19. Naser, Hanan & Ahmed, Abdul Rashid, 2016. "Oil Price Shocks and Stock Market Performance in Emerging Economies: Some Evidence using FAVAR Models," MPRA Paper 77868, University Library of Munich, Germany.
    20. Silvapulle, Param & Smyth, Russell & Zhang, Xibin & Fenech, Jean-Pierre, 2017. "Nonparametric panel data model for crude oil and stock market prices in net oil importing countries," Energy Economics, Elsevier, vol. 67(C), pages 255-267.
    21. Li, Su-Fang & Zhu, Hui-Ming & Yu, Keming, 2012. "Oil prices and stock market in China: A sector analysis using panel cointegration with multiple breaks," Energy Economics, Elsevier, vol. 34(6), pages 1951-1958.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bam:wpaper:bafes25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marta Disegna The email address of this maintainer does not seem to be valid anymore. Please ask Marta Disegna to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/bsbouuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.