Conference Paper
Oil Shocks and Financial Stability in MENA Countries
No.
ERF29AC_55
Publisher
ERF
Date
May, 2023
We examine the link between financial stress and three sources of commodity fluctuations in MENA countries, namely: (i) oil demand shocks; (ii) oil supply shocks; and (iii) (financial) risk shocks. To do so, we use a novel quantile coherency approach and daily data for 11 MENA countries over the period September 21, 2006 – August 19, 2021, thus, improving upon the existing studies that typically rely on single-frequency and time-frequency dependence. As a result, we are able to capture both varied market conditions and different investment horizons. We find that financial stress is particularly acute during extreme oil demand and oil supply shocks, especially at longer horizons. By contrast, (financial) risk shocks appear to be more prominent in generating financial stress at relatively shorter horizons and regardless of the quantiles of the distribution. This empirical evidence can have strong implications for policymakers in the region, as well as portfolio managers.
Research Fellows
Ahmed Elsayed
Associate Professor of Financial Economics, United Arab...
Authors
Kazi Sohag
Associate Professor and Head of the PhD...