Economic policy

The relationship between oil prices, global economic policy uncertainty and financial market stress

The Relationship Between Oil Prices, Global Economic Policy Uncertainty, and Financial Market Stress – Journal of Energy Markets

  • The NARDL technique confirms the long-term asymmetric relationship between global economic policy uncertainty, gold prices and oil prices.
  • Influence of monetary policy on oil prices limited to its long-term negative effects
  • Results indicate long-term and short-term relationships between negative OP and financial stress index
  • Oil prices have an inverse impact on the short-term and long-term financial stress index

This article presents two models. The first model analyzes the impacts of global economic policy uncertainty (UPR), gold price (generalists) and three months WE Treasury bills (TB) rates on oil prices (POs) between 1997 and 2020. The second model examines the effects of POsand WE TB rate on the Püttmann financial stress indicator (ISF) between 1979 and 2016. To capture the long- and short-term relationships between the independent and dependent variables, an asymmetric nonlinear autoregressive distributed lag model is used for both models. The results indicate that the effects of the independent variables are long term only. The results confirm the significant impact of UPR and generalistis on POs long term. For the second model, POs is the key variable in explaining both long-term and short-term financial stress. Although the negative fluctuations of POs have a positive effect on the ISF in the short term, their impacts on ISF become negative in the long term. The overall results show how POs are affected by uncertainty and how they influence ISF.

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