Financial stress, economic policy uncertainty, and oil price uncertainty

George Apostolakis, Christos Floros, Konstantinos Gkillas and Mark Wohar ()

Energy Economics, 2021, vol. 104, issue C

Abstract: The role of non-financial sector market fluctuations such as the role of oil price uncertainty either on financial stability or on policy-related economic uncertainty has not been investigated extensively. This study examines the connectedness of financial stress and economic policy uncertainty with a non-financial market of Brent oil and its prices, by employing a Diebold and Yilmaz (2012, 2014) generalized framework and a TVP-VAR model specification. We use monthly series of 7 advanced countries, namely the US, UK, Canada, Japan, Germany, France, and Italy and 2 different indices for measuring financial stress (FSI) and economic policy uncertainty (EPU), over the period 2007–2020. Furthermore, the literature on oil price uncertainty and its effect on financial stress and on economic policy uncertainty is scarce. We additionally, examine the impact of oil price volatility on FSI and on EPU, by employing a structural VAR-GARCH-M model specification and IRFs analysis. Our results from the dynamic connectedness analysis indicate that during the COVID-19 pandemic, spillovers have increased substantially but not exceeded the Global Financial Crises 2007 levels. Finally, our estimation results from the IRFs analysis reveal that oil price uncertainty is associated with higher financial stress for some of the G7 countries while it is not related to economic policy uncertainty.

Keywords: FSI, financial stress; Financial stability; Economic policy uncertainty; EPU; Oil price shock; Spillovers; GARCH-M; Impulse responses; Pandemic (search for similar items in EconPapers)
JEL-codes: C22 C32 C33 C51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:104:y:2021:i:c:s0140988321005405

DOI: 10.1016/j.eneco.2021.105686

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