Oil market cyclical shocks and fiscal stance in OPEC+

The fiscal policies of OPEC + member countries are intricately linked to the fluctuations in oil prices. Through rigorous fiscal consolidation efforts, certain OPEC + nations have fortified their ability to absorb these price shocks. In our study, we introduced a range of cyclical oil price shocks by employing both HP and Hamilton filters. To ensure the robustness of our analysis, we adopted a Panel VAR approach under system GMM framework, coupled with Helmert Transformation and common correlation variables. These methodological choices effectively addressed issues related to endogeneity, heterogeneity, and cross-sectional bias in our empirical estimation. Our research uncovered that cyclical oil price shocks have an immediate, positive impact on fiscal stance, albeit with diminishing effects in the medium to long term. Conversely, gradual oil price trends displayed insignificant influence on fiscal policy. Given the considerable economic disparities among OPEC + countries, we applied a dynamic common correlation analysis within a mean group framework to disentangle the effects of cyclical shocks from fiscal responses. Our findings highlight that, among OPEC + members, Gabon, Iraq, Russia, Saudi Arabia, the UAE, and Kazakhstan are particularly well-positioned to leverage cyclical oil price shocks. These empirical results hold crucial implications for policy formulation within the OPEC + alliance.