 The nonlinear effect of oil price shocks on financial stress: Evidence from ChinaRenren Liu, Jianzhong Chen and Fenghua Wen The North American Journal of Economics and Finance, 2021, vol. 55, issue C Abstract: This paper examines the nonlinear effects of different types of oil price shocks on China’s financial stress index (FSI). For this purpose, we use newly proposed framework by Ready (2018) to decompose oil prices into supply, demand and risk shocks. Then, we use a Markov regime-switching (MRS) model to investigate the nonlinear effects of these oil price shocks on China’s FSI. The empirical results show that the effects of three oil price shocks are nonlinear under different regimes. In particular, oil supply shocks mainly have a significantly positive effect on China’s FSI in the low-volatility state; demand shocks have negative effects on China’s FSI in different regimes, but this effect is larger in the low-volatility state; the effect of risk shocks on China’s FSI is the opposite, and it is positive in the high-volatility state but negative in the low-volatility state. Keywords: China’s financial stress index; Markov regime-switching model; Nonlinear effect; Oil price shocks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820302047 DOI: 10.1016/j.najef.2020.101317 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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