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The time-varying responses of financial intermediation and inflation to oil supply and demand shocks in the US: Evidence from Bayesian TVP-SVAR-SV approach

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  • Boufateh, Talel
  • Saadaoui, Zied

Abstract

The perception of the pass-through of oil price shocks on the real and financial spheres has undergone considerable evolution with the emergence of a literature devoted to the sources of oil price fluctuations. This perception is also found to evolve over time depending on market expectations, structural changes or crises. Focusing on the specific case of the US, this paper investigates the time-varying effects of oil price shocks on financial intermediation (credit market) and inflation as a transmission channel. Monthly data are used for a period that encompasses the recent Covid-19 pandemic crisis. Prior to the construction of a time-varying parameter structural vector autoregression stochastic volatility (TVP-SVAR-SV), a structural VAR (SVAR) model is estimated to disentangle oil price shocks in four shocks: oil supply, aggregate demand, domestic demand and oil-specific demand shocks. The results underscore the increasing response of financial intermediation to oil supply, aggregate demand and oil specific demand shocks since the shale revolution. In addition, the response of credit markets to aggregate demand shocks during the covid-19 pandemic is different from that observed during the subprime crisis. It appears also that the response of inflation influence the reaction of the credit market to aggregate and domestic demand shocks.

Suggested Citation

  • Boufateh, Talel & Saadaoui, Zied, 2021. "The time-varying responses of financial intermediation and inflation to oil supply and demand shocks in the US: Evidence from Bayesian TVP-SVAR-SV approach," Energy Economics, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:eneeco:v:102:y:2021:i:c:s0140988321004126
    DOI: 10.1016/j.eneco.2021.105535
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    2. Szafranek, Karol & Szafrański, Grzegorz & Leszczyńska-Paczesna, Agnieszka, 2024. "Inflation returns. Revisiting the role of external and domestic shocks with Bayesian structural VAR," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 789-810.
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    5. Sohag, Kazi & Hassan, M. Kabir & Kalina, Irina & Mariev, Oleg, 2023. "The relative response of Russian National Wealth Fund to oil demand, supply and risk shocks," Energy Economics, Elsevier, vol. 123(C).
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    7. Maghyereh, Aktham & Ziadat, Salem Adel & Al Rababa'a, Abdel Razzaq A., 2024. "Exploring the dynamic connections between oil price shocks and bond yields in developed nations: A TVP-SVAR-SV approach," Energy, Elsevier, vol. 306(C).
    8. Shahzad, Umer & Orsi, Bianca & Sharma, Gagan Deep, 2024. "Managing inflation expectations and the efficiency of monetary policy responses to energy crises," Energy Economics, Elsevier, vol. 133(C).
    9. Ni, Jianhui & Ruan, Jia, 2024. "Contagion effects of external monetary shocks on systemic financial risk in China: Evidence from the Euro area and Japan," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
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    More about this item

    Keywords

    Oil price shocks; Supply; Demand; Inflation; Financial intermediation; TVP-SVAR-SV;
    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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