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Do oil-market shocks drive global liquidity?

Author

Listed:
  • Yao Axel Ehouman
Abstract
This paper aims to assess the impact of oil shocks on global liquidity evolution over the 1999–2018 period, an issue not already addressed by literature. To this end, we rely on a two-stage approach that allows us to trace fluctuations in the crude oil price to the underlying supply and demand shocks, on the one hand, and to estimate the responses of global liquidity indicators to these shocks on the other hand. Our results support the existence of a link between oil shocks and global liquidity. In particular, we show that global liquidity responses to oil shocks depend on the shocks’ nature. While aggregate and oil-specific demand shocks have, respectively, negative and positive effects on the evolution of global liquidity, oil supply shocks do not significantly affect global liquidity due to their relatively low contribution to oil price changes. Thus, this paper highlights that oil price movements by driving global liquidity dynamics can be identified as a potential source of financial instability.

Suggested Citation

  • Yao Axel Ehouman, 2020. "Do oil-market shocks drive global liquidity?," EconomiX Working Papers 2020-33, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2020-33
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    More about this item

    Keywords

    Global liquidity; oil price; oil demand shocks; oil supply shocks; Structural VAR.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F00 - International Economics - - General - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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