Oil price shocks and EMU sovereign yield spreads

Abstract

This study examines for the first time the relationship among the oil price shocks and the sovereign yield spreads in the EMU (which is collectively the largest oil-importer of the world), in a time-varying environment. In particular, we examine the timevarying correlation between oil price shocks and the 10-year sovereign yield spread of core and periphery countries in the EMU, by employing a scalar-BEKK framework.The main findings reveal that the correlations between sovereign yield spreads and oil price shocks are indeed time-varying and are influenced by specific economic and geopolitical events that took place during the study period. Furthermore, even though the correlation patterns are constantly low or zero prior to the Great Recession, a change is revealed in the post-2008 period, when correlations become moderate and more volatile. Finally, we do not observe noteworthy differences in the correlation behaviour between core and periphery countries to different oil price shocks. The findings of this study are particularly useful and provide valuable information to marketplace participants.

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

“…The recent study developed by Urom et al ( 2022 ) focuses on the evaluation of the time-varying integration between oil price shocks and interest rates in different economic areas, such as Asia, the US, and the EU. Similar studies, but focusing on Economic and Monetary Union countries, and leading oil producing and consuming countries, are found in Filippidis et al ( 2020 ) and Umar et al ( 2022a ), respectively. The latter differs from the previous ones by breaking down high-frequency oil changes into risk, demand, and supply shocks, which can provide valuable information for market participants.…”

“…TSIR connectedness. As for to the third group of papers analysing connectedness measures in BRICS countries, finally, regarding the connectedness of TSIRs, several authors have investigated the degree of bond market integration through TSIRs (Kumar and Okimoto, 2011) and by decomposing TSIRs into their three components (e.g., Jotikasthira et al, 2015;Ioannidis and Ka, 2018;Gabauer et al, 2020, Gupta et al, 2020aRiaz et al, 2020;Aharon et al, 2022;Umar et al, 2022cUmar et al, , 2022d, and many of them have focused on analysing the connectedness between sovereign bonds and changes in oil prices (Filippidis et al, 2020;Nazlioglu et al, 2020;Umar et al, 2022a).…”

Stock market reactions to different types of oil shocks: Evidence from China

“…The author identifies these shocks using structural vector autoregression (SVAR) by incorporating data from oil production and shipping prices as proxies for demand and supply. Empirical findings from this study provide substantial evidence that each type of oil shock has a distinct impact on various US economic indicators and this approach is commonly used to analyze the impact of different types of oil shocks on various macroeconomic and financial market variables (e.g., Basher et al, 2016; Broadstock & Filis, 2014; Filippidis et al, 2020; Kilian & Park, 2009; Kim et al, 2017; Zhao et al, 2016).…”

Structural break and consumer prices: the case of Malaysia

“…Even though the correlation patterns are constantly low or zero prior to the Great Recession, a change is revealed in the post-2008 period, when correlations become moderate and more volatile. (Filippidis et al, 2020) Volatility spillover between oil and other commodity prices…”