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Tracing the Genesis of Contagion in the Oil-Finance Nexus

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Listed:
  • Scott M. R. Mahadeo
  • Reinhold Heinlein
  • Gabriella Deborah Legrenzi

Abstract

A new procedure to trace the sources of contagion in the oil-finance nexus is proposed. We do this by consolidating veteran rules derived from the empirical oil literature to filter oil supply, global demand, and oil demand shocks into discrete typical and extreme conditions. We show how these identified conditions can then be used to determine the stable and extreme sub-samples for comparing market relationships in the construction of contagion tests. Our original approach is useful for systemic risk assessment in countries vulnerable to oil market shocks. We illustrate the procedure using the dynamic relationships between the international crude oil market and the financial markets of a small oil-exporter.

Suggested Citation

  • Scott M. R. Mahadeo & Reinhold Heinlein & Gabriella Deborah Legrenzi, 2019. "Tracing the Genesis of Contagion in the Oil-Finance Nexus," CESifo Working Paper Series 7925, CESifo.
    • Handle: RePEc:ces:ceswps:_7925
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    References listed on IDEAS

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    Cited by:

    1. Reinhold Heinlein & Scott M. R. Mahadeo, 2023. "Oil and US stock market shocks: Implications for Canadian equities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(1), pages 247-287, February.

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    More about this item

    Keywords

    contagion; correlation; exchange rate; oil; stock market;
    All these keywords.

    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
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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