Oil market cyclical shocks and fiscal stance in OPEC+

Kazi Sohag (), Irina Kalina and Nahla Samargandi

Energy, 2024, vol. 296, issue C

Abstract: 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.

Keywords: Fiscal stance; Oil price; Oil cyclical shock; Dynamic common correlated effects; Panel VAR; Hodrick-Prescott filter; Hamilton filter (search for similar items in EconPapers)
JEL-codes: E62 H62 Q4 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0360544224007217
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:296:y:2024:i:c:s0360544224007217

DOI: 10.1016/j.energy.2024.130949

Access Statistics for this article

Energy is currently edited by Henrik Lund and Mark J. Kaiser

More articles in Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().