Spillovers between sovereign yield curve components and oil price shocks

Umar, Zaghum; Aharon, David Y.; Esparcia, Carlos; Alwahedi, Wafa

doi:10.1016/j.eneco.2022.105963

Cited by 25 publications

(6 citation statements)

References 56 publications

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“…The recent study developed by Urom et al ( 2022 ) focuses on the evaluation of the time-varying integration between oil price shocks and interest rates in different economic areas, such as Asia, the US, and the EU. Similar studies, but focusing on Economic and Monetary Union countries, and leading oil producing and consuming countries, are found in Filippidis et al ( 2020 ) and Umar et al ( 2022a ), respectively. The latter differs from the previous ones by breaking down high-frequency oil changes into risk, demand, and supply shocks, which can provide valuable information for market participants.…”

Section: Literature Reviewsupporting

confidence: 71%

“…Nazlioglu et al (2020) explore some of the major oil exporting and importing countries and, in particular, return and volatility spillovers for their bond markets. They also concluded that it would be interesting to disentangle oil price changes into risk, demand, and supply shocks, as noted in the earlier work, Umar et al (2022a), among others. Unlike all previous studies, the work of Shahzad et al (2021) explores investment-grade corporate bonds (rather than government bonds) at different investment time horizons, also focusing on the interdependencies between crude oil prices and US corporate bond yields.…”

Section: Connectedness On Bricsmentioning

confidence: 75%

“…TSIR connectedness. As for to the third group of papers analysing connectedness measures in BRICS countries, finally, regarding the connectedness of TSIRs, several authors have investigated the degree of bond market integration through TSIRs (Kumar and Okimoto, 2011) and by decomposing TSIRs into their three components (e.g., Jotikasthira et al, 2015;Ioannidis and Ka, 2018;Gabauer et al, 2020, Gupta et al, 2020aRiaz et al, 2020;Aharon et al, 2022;Umar et al, 2022cUmar et al, , 2022d, and many of them have focused on analysing the connectedness between sovereign bonds and changes in oil prices (Filippidis et al, 2020;Nazlioglu et al, 2020;Umar et al, 2022a).…”

Section: Connectedness On Bricsmentioning

confidence: 99%

See 2 more Smart Citations

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

Jareño

Escribano

Umar

2023

Humanit Soc Sci Commun

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This study aims to examine the impact of the different waves of the COVID-19 pandemic on the connectedness of the BRICS (Brazil, Russia, India, China, and South Africa) term structure of interest rates and its components (level, slope and curvature). For that purpose, this research applies the time-varying parameter vector autoregression (TVP-VAR) approach in order to assess the direction of spillovers among countries and factors and measure their contribution to the connectedness system. Our results show that the total connectedness measure changes over time, and the level and curvature components show connectedness that persists longer than the slope component, both in the first wave of the COVID-19 pandemic. Brazil and South Africa would appear as net transmitters of shocks, whereas China and India are net receivers. Finally, the most significant differences in the net dynamic connectedness between transmitters and receivers were focused on before and during the first wave of the COVID-19 pandemic crisis. Some additional impacts were observed during the last waves of the coronavirus pandemic. To our best knowledge, this is the first study on the connectedness between the yield curves of the BRICS economies and the COVID-19 crisis uncertainty according to the coronavirus MCI, by decomposing the yield curve into its factors (level, slope, and curvature).

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Section: Literature Reviewsupporting

confidence: 71%

Section: Connectedness On Bricsmentioning

confidence: 75%

Section: Connectedness On Bricsmentioning

confidence: 99%

See 1 more Smart Citation

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

Jareño

Escribano

Umar

2023

Humanit Soc Sci Commun

Self Cite

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“…In consequence, since the seminal work of Kilian [12], a rapidly growing number of papers have been dedicated to examining whether oil price effects on financial markets were mainly driven by supply or demand factors by distinguishing between oil supply and demand disturbances [11]. However, most of these works have focused on the study of oil price unanticipated changes in developed stock markets [13][14][15], with a smaller number of works dedicated to studying other financial markets, including bond markets [11,16], precious metals [17], and energy markets [18,19].…”

Section: Introductionmentioning

confidence: 99%

Volatility Spillovers in Emerging Markets: Oil Shocks, Energy, Stocks, and Gold

Alzate-Ortega,

Garzón,

Molina-Muñoz

2024

Energies

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This paper extends the literature on the relationship between oil price shocks and financial markets by examining the effect of supply and demand oil shocks on emerging energy markets, stocks of emerging markets, and gold and exploring the impact of unpredictable oil events on the degree of connectedness among these markets. We show that the effect of supply oil price disturbances drives volatility spillovers in emerging markets with prominent medium- and long-term effects, unlike demand oil price unanticipated changes, particularly during turbulent periods such as the 2008 subprime crisis, the COVID-19 pandemic, and the 2015 oil price crash. These volatility spillover effects are influenced by a marked relationship between supply oil disturbances and emerging energy markets. We also expose that the COVID-19 pandemic volatility spillover consequences in emerging markets are unprecedented compared to the 2008 financial crisis. This can be attributed to the different nature of the related oil price disturbances and financial crises. Overall, the findings highlight the role of crude oil supply shocks as drivers not only of volatility dynamics in energy and equity emerging markets but also of financial connectedness patterns in these economies.

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“…A surge in commodity prices naturally appreciates currencies of commodity-exporting countries with improved current account balances [7,8]. The central bank of these countries may reduce interest rates to weaken the local currency [9]. This process could eventually lead to narrower sovereign yield spreads, thus motivating our study of the liquidity effect on sovereign yield spreads in commodity-exporting countries under QE scenarios.…”

Section: Introductionmentioning

confidence: 99%

The Liquidity Effect of the U.S. QE on Sovereign Yield Spreads of Commodity-Exporting Countries

2023

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This paper investigates the liquidity effect of the U.S. QE on the sovereign yield spreads of commodity-exporting countries by employing the two-stage least squares approach. The key contributions of the paper are in terms of our empirical findings. First, our results show that the U.S. QE has an economically and statistically significant liquidity effect in terms of both the HPW illiquidity measure and the TIPS liquidity premium. This is of policy importance because adjusting for the liquidity premium is a key stage in modeling inflationary expectations. Second, our results show that the U.S. QE reduced the liquidity premium with improved market liquidity and hence reduce sovereign yield spreads of most commodity-exporting countries. This finding is of macroeconomic importance as reduced sovereign yield spreads have been shown to lead to higher real activity and higher credit activity.

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Spillovers between sovereign yield curve components and oil price shocks

Cited by 25 publications

References 56 publications

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure

Volatility Spillovers in Emerging Markets: Oil Shocks, Energy, Stocks, and Gold

The Liquidity Effect of the U.S. QE on Sovereign Yield Spreads of Commodity-Exporting Countries

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