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Khaled Guesmi, Nabila BOUKEF JLASSI, Ahmed Atil and Imen Haouet
''On the Influence of Oil Prices on Financial Variables''
( 2016, Vol. 36 No.4 )
This paper investigates how oil price shocks interact with three key financial variables—implied stock market volatility, interest rate, and exchange rate—within a Bayesian VAR (BVAR) framework. By defining oil price as an endogenous variable and a shock, as in Hamilton (2003), our proposed model allows us to gauge the shock transmission among the system variables over time. We are also able to compare the conditional one-period-ahead forecasts produced by the BVAR model using different distributional priors. Our empirical findings show that the results of parameter estimates, impulse responses, and forecasts are insensitive to the choice of priors that provide similar findings. Moreover, of the three key financial variables, the volatility index is the most sensitive to oil price shocks. Further, shocks to these three variables have transitory impacts on oil price, with the longest impact deriving from changes in the exchange rate.
Keywords: oil prices, financial variables, Bayesian VAR
JEL: F1 - Trade: General
F4 - Macroeconomic Aspects of International Trade and Finance: General
Manuscript Received : Jan 15 2016 Manuscript Accepted : Nov 28 2016

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