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Oil Market Shocks and Financial Instability in Asian Countries

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  • Dagher, Leila
  • Hasanov, Fakhri

Abstract

This paper examines the relationship between oil market shocks and financial instability in Asian countries using a Structural Vector Autoregression (SVAR) following Kilian’s (2009) methodology. Instability in the Asian financial markets is measured by the Financial Stress Index (FSI). Based on impulse response functions, the findings confirm that the source of an oil price shock (supply side or demand side) is extremely important to financial markets. When the oil price increases as a result of oil-specific demand shocks, the financial markets experience less stress. However, when the oil price increases as a result of oil-specific supply shocks, the financial markets experience increased stress. The findings of the study should be useful for international and domestic investors for portfolio diversification and other investment-production purposes, as well as for financial stability regulators and other monetary authorities.

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  • Dagher, Leila & Hasanov, Fakhri, 2022. "Oil Market Shocks and Financial Instability in Asian Countries," MPRA Paper 116079, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116079
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    More about this item

    Keywords

    FSI; oil price; oil supply; Asian countries; SVAR; impulse response functions;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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