Economics at your fingertips  

Nonlinearities in the oil effects on the sovereign credit risk: A self-exciting threshold autoregression approach

Saker Sabkha, Christian de Peretti () and Dorra Hmaied

Research in International Business and Finance, 2019, vol. 50, issue C, 106-133

Abstract: The unquenchable thirst of several sectors to crude oil in the recent years makes a common belief regarding its key role towards the acceleration of the recent economic recession and financial instability. This paper aims to examine the nonlinear impact of oil shocks on the sovereign credit risk for a sample of 38 worldwide oil-producing and oil-consuming countries, over a period ranging from January 2006 to March 2017. In contrast to the existing literature, CDS volatility is employed as a measure for the creditworthiness level, rather than the commonly used CDS spreads first-order moment. The methodological framework used in this paper goes beyond previous studies and takes into account more financial data features (long memory behavior, asymmetric effects and nonlinearities) according to a self-exciting regime switching model. Results reveal some dissimilarities in the explanatory power of the exogenous variables between regimes and across countries. Particularly, restricted evidences of the impact of oil shocks on sovereign CDS volatility are detected during the stable regime, whilst during the risky regime credit volatility becomes more sensitive to oil market conditions for most of the studied countries. Overall, the decline in oil price worsens the public finances tenability whether the country is oil-related or not.

Keywords: Sovereign CDS volatility; Oil market; FIAPARCH; SETAR; Threshold regime-switching (search for similar items in EconPapers)
JEL-codes: G1 G15 E44 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
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:

DOI: 10.1016/j.ribaf.2019.04.005

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-07-02
Handle: RePEc:eee:riibaf:v:50:y:2019:i:c:p:106-133