Norges Bank

Working Paper

Oil price shocks and stock market booms in an oil exporting country

Author:
by Hilde C. Bjørnland
Series:
Working Paper
Number:
16/2008

Abstract
This paper analyses the effects of oil price shocks on stock returns in Norway, an oil exporting country, highlighting the transmission channels of oil prices for macroeconomic behaviour. To capture the interaction between the different variables, stock returns are incorporated into a structural VAR model, as stock prices are an important transmission channel of wealth in an oil abundant country. I find that following a 10 percent increase in oil prices, stock returns increase by 2.5 percent, after which the effect eventually dies out. The results are robust to different (linear and non-linear) transformations of oil prices. The effects on the other variables are more modest. However, all variables indicate that the Norwegian economy responds to higher oil prices by increasing aggregate wealth and demand. The results also emphasize the role of other shocks; monetary policy shocks in particular, as important driving forces behind stock price variability in the short term.

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ISSN 1502-8190 (online)

Published 27 October 2008 12:29
Published 27 October 2008 12:29