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The Impact of Oil Price Shocks on U.S. Bond Market Returns

  • Wensheng Kang
  • Ronald A. Ratti
  • Kyung Hwan Yoon

This paper examines the effect of the demand and supply shocks driving the global crude oil market on aggregate U.S. bond index real returns. A positive oil market-specific demand shock is associated with significant decreases in aggregate bond index real returns for 8 months following the shock. A positive innovation in aggregate demand has a negative effect on real bond return that is statistically significant and becomes more adverse over 24 months. Structural shocks driving the global oil market jointly account for 27.1% of the variation in real bond returns at 24 month horizon. A spillover index from rolling SVAR models is used to identify the interdependence between the oil market and bond returns. The mean for this spillover index is 0.381 over 2001:01-2011:12 and 0.476 over September through December 2008 during the height of the global financial crisis.

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File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-04/33_2014_kang_ratti_yoon.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-33.

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Length: 42 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-33
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