The impacts of oil price volatility on financial stress : is the COVID-19 period different?

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Authors

Sheng, Xin
Kim, Won Joong
Gupta, Rangan
Ji, Qiang

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

This study analyses the effects of oil price volatility on financial stress with various measures for a large panel of countries. The study places a special focus on comparing the pattern of these effects during the Great Recession period and the COVID-19 recession period. Using the local projection approach, the paper finds that oil price volatility has a positive and persistent effect on financial stress. However, the magnitude and the degree of persistency of oil price volatility impacts on financial stress are much greater for the Great Recession period than for the COVID-19 recession period. A possible explanation for this result would be that COVID-19 is better thought of as a “natural disaster” in which companies under stress were not being mismanaged. Another explanation would be that active intervention by the government through monetary and fiscal channels reduces the sensitivity of financial instability to oil price volatility during the COVID-19 period.

Description

DATA AVAILABILITY : Data will be made available on request.

Keywords

COVID-19 recession, Coronavirus disease 2019 (COVID-19), Global financial crisis (GFC), Local projection Impulse response, Financial stress index (FSI), Oil price volatility, SDG-08: Decent work and economic growth

Sustainable Development Goals

Citation

Sheng, X., Kim, W.J., Gupta, R. et al. 2023, 'The impacts of oil price volatility on financial stress: is the COVID-19 period different?', International Review of Economics & Finance, vol. 85, pp. 520-532, doi : 10.1016/j.iref.2023.02.006.