Oil Price Shocks and Yield Curve Dynamics in Emerging Markets

Oguzhan Cepni, Rangan Gupta, Cenk Karahan () and Brian Lucey
Additional contact information
Cenk Karahan: Department of Management, Bogazici University, Istanbul, 34342, Turkey

No 202036, Working Papers from University of Pretoria, Department of Economics

Abstract: In a local projections framework, we study the impact of oil price shocks, based on a refined approach to disentangle oil price movements, on the dynamics of the entire yield curve in nineteen emerging economies with different positions on the oil market. Responses of the term structure factors to oil market shocks are shown to differ conditional on not only the underlying sources that drive oil price, but also based on the oil-dependence of these economies. In particular, we find that oil price risk shocks put upward pressure on the level, slope, and curvature of interest rates across the board. Supply-driven shocks in oil markets cause a rise in the level of interest rates in oil-importing economies more significantly, yet the downward impact on yield curve slope is more pronounced in oil-exporting countries. Demand-driven shocks have a significant and persistent upward impact on level factors in oil-importing countries. Furthermore, the effect of precautionary demand shocks on the curvature factor is more pronounced in oil-importing countries vis-vis oil-exporters. Significance, direction, and duration of our results may guide monetary policymakers in emerging countries as well as international investors in portfolio and hedging decisions.

Keywords: Emerging markets; Local projections; Oil price; Supply and demand shocks; Yield curve factors (search for similar items in EconPapers)
JEL-codes: E43 E44 G12 G15 Q43 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2020-05
New Economics Papers: this item is included in nep-ene and nep-mac
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Oil price shocks and yield curve dynamics in emerging markets (2022)
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:pre:wpaper:202036

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().