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The Impact of Oil Shocks on Sovereign Default Risk

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  • Alturki,Sultan Abdulaziz M
  • Hibbert,Ann Marie

Abstract

The paper examines the impact of oil shocks on sovereign credit default swaps (CDS) for the G10 countries and major oil-exporting countries. The results show that oil demand shocks have a uniformly negative impact on CDS spreads. In contrast, oil supply shocks increase the spreads of the G10 countries, but reduce the spreads of oil-exporting countries. Using quantile regressions, the findings show that oil demand shocks affect spreads across the conditional distribution, while oil supply shocks mostly influence the upper quantiles of spread changes. Furthermore, a two-state Markov-switching modeling confirms a significant non-linearity in the impact of oil shocks.

Suggested Citation

  • Alturki,Sultan Abdulaziz M & Hibbert,Ann Marie, 2021. "The Impact of Oil Shocks on Sovereign Default Risk," Policy Research Working Paper Series 9546, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9546
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    References listed on IDEAS

    as
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