The Impacts of Oil Price Volatility on Financial Stress: Is the COVID-19 Period Different?

Xin Sheng (), Won Kim Author-wjkim72@konkuk.ac.kr and Rangan Gupta
Additional contact information
Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, United Kingdom
Won Kim Author-wjkim72@konkuk.ac.kr: Department of Economics, Konkuk University, Seoul, Republic of Korea

No 202184, Working Papers from University of Pretoria, Department of Economics

Abstract: Utilising both high frequency (daily) and monthly data this study analyses the effects of oil price volatility on financial stress with various measures. The study places a special focus on comparing the pattern of these effects during the Great Recession period and the COVID-19 recession period. Using the local projection approach, the paper finds that oil price volatility has a positive and persistent effect on financial stress. However, the magnitude and the degree of persistency of oil price volatility impacts on financial stress are much greater for the Great Recession period than for the COVID-19 recession period. A possible explanation for this result would be that the COVID-19 is better thought of as a “natural disaster†in which companies in stress were not being mismanaged. Another explanation would be that active intervention by the government through monetary and fiscal channels reduces the sensitivity of financial instability to oil price volatility during the COVID-19 period.

Keywords: Oil price volatility; financial stress index (FSI); local projection; impulse response; global financial crisis (GFC); COVID-19 recession (search for similar items in EconPapers)
JEL-codes: G01 G10 Q41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2021-12
New Economics Papers: this item is included in nep-ene and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: The impacts of oil price volatility on financial stress: Is the COVID-19 period different? (2023)
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