Hostname: page-component-7479d7b7d-jwnkl Total loading time: 0 Render date: 2024-07-14T02:51:53.223Z Has data issue: false hasContentIssue false


Published online by Cambridge University Press:  23 May 2016

Apostolos Serletis*
University of Calgary
Libo Xu
University of Calgary
Address correspondence to: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Alberta T2N 1N4, Canada; e-mail:; Web:


We investigate mean and volatility spillovers between the crude oil market and the debt, stock, and foreign exchange markets. In doing so, we estimate a four-variable VARMA–GARCH model with a BEKK representation and also examine the possible effects of monetary policy at the zero lower bound by including a dummy variable in both the conditional mean and variance equations. We find that the crude oil market and the financial markets are tightly interconnected and that monetary policy at the zero lower bound has strengthened their linkages.

Copyright © Cambridge University Press 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


We would like to thank Lutz Kilian for comments that greatly improved the paper.



Alquist, R., Kilian, L., and Vigfusson, R.J. (2013) Forecasting the price of oil. In Elliott, G. and Timmermann, A. (eds.), Handbook of Economic Forecasting, Vol. 2, pp. 427507. Amsterdam: North-Holland.Google Scholar
Amano, R.A. and van Norden, N.S. (1998) Oil prices and the rise and fall of the US real exchange rate. Journal of International Money and Finance 17, 299316.Google Scholar
Barsky, R.B. and Kilian, L. (2002) Do we really know that oil caused the great stagflation? A monetary alternative. In Bernanke, B.S. and Rogoff, K. (eds.). NBER Macroeconomics Annual 2002, pp. 137183. Cambridge, MA: The MIT Press.Google Scholar
Bauwens, L., Laurent, S., and Rombouts, J.V.K. (2006) Multivariate GARCH models: A survey. Journal of Applied Econometrics 21, 79109.Google Scholar
Bernanke, B.S., Gertler, M., and Watson, M. (1997) Systematic monetary policy and the effects of oil price shocks. Brookings Papers on Economic Activity 1, 91142.CrossRefGoogle Scholar
Bodenstein, M., Guerrieri, L., and Kilian, L. (2012) Monetary policy responses to oil price fluctuations. IMF Economic Review 60, 470504.Google Scholar
Bollerslev, T., Engle, R.F., and Wooldridge, J. (1988) A capital asset pricing model with time varying covariances. Journal of Political Economy 96, 143172.CrossRefGoogle Scholar
Braun, P.A. and Mittnik, S. (1993) Misspecifications in vector autoregressions and their effects on impulse responses and variance decompositions. Journal of Econometrics 59, 319341.CrossRefGoogle Scholar
Chen, H. and Chen, S. (2007) Oil prices and real exchange rates. Energy Economics 29, 390404.Google Scholar
Chen, Y-C., Rogoff, K.S., and Rossi, B. (2010) Can exchange rates forecast commodity prices? Quarterly Journal of Economics 125, 11451194.Google Scholar
Dickey, D.A. and Fuller, W.A. (1981) Likelihood ratio tests for autoregressive time series with a unit root. Econometrica 49, 10571072.Google Scholar
Elliot, G., Rothenberg, T.J., and Stock, J.H. (1996) Efficient tests for an autoregressive unit root. Econometrica 64, 813836.CrossRefGoogle Scholar
Hamilton, J.D. and Herrera, A.M. (2004) Oil shocks and aggregate macroeconomic behavior: The role of monetary policy. Journal of Money, Credit and Banking 36, 265286 Google Scholar
Herrera, A.M. and Pesavento, E. (2009) Oil price shocks, systematic monetary policy and the great moderation. Macroeconomic Dynamics 13, 107137.Google Scholar
Inoue, A. and Kilian, L. (2002) Bootstrapping smooth functions of slope parameters and innovation variances in VAR ∞ Models. International Economic Review 43, 309331.Google Scholar
Jarque, C.M. and Bera, A.K. (1980) Efficient tests for normality, homoscedasticity, and serial independence of regression residuals. Economics Letters 6, 255259.Google Scholar
Johansen, S. (1988) Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control 12, 231254.Google Scholar
Jones, C. and Kaul, G. (1996) Oil and the stock markets. Journal of Finance 51, 463491.CrossRefGoogle Scholar
Kilian, L. (2009) Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. American Economic Review 99, 10531069.Google Scholar
Kilian, L. and Lewis, L. (2011) Does the Fed respond to oil price shocks? Economic Journal 121, 10471072.Google Scholar
Kilian, L. and Park, C. (2009) The impact of oil price shocks on the U.S. stock market. International Economic Review 50, 12671287.Google Scholar
Kilian, L. and Vigfusson, R.J. (2011) Are the responses of the U.S. economy asymmetric in energy price increases and decreases? Quantitative Economics 2, 419453.Google Scholar
Kwiatkowski, D., Phillips, P.C.B., Schmidt, P., and Shin, Y. (1992) Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics 54, 159178.Google Scholar
Lütkepohl, H. (2004) Vector autoregressive and vector error correction models. In Lütkepohl, H. and Krätzig, M. (eds.), Applied Time Series Econometrics, pp. 86158. Cambridge, UK: Cambridge University Press.Google Scholar
Lütkepohl, H. (2005) Introduction to Multiple Time Series Analysis, 3rd ed. Berlin: Springer-Verlag.Google Scholar
Park, J. and Ratti, R. (2008) Oil price shocks and stock markets in the U.S. and 13 European countries. Energy Economics 30, 2857–2608.Google Scholar
Pindyck, R.S. and Rotemberg, J.J. (1990) The excess co-movement of commodity prices. Energy Journal 100, 11731189.Google Scholar
Sadorsky, P. (1999) Oil price shocks and stock market activity. Energy Economics 21, 449469.Google Scholar
Sadorsky, P. (2000) The empirical relationship between energy futures prices and exchange rates. Energy Economics 22, 253266.Google Scholar
Sadorsky, P. (2001) Risk factors in stock returns of Canadian oil and gas companies. Energy Economics 23, 1728.Google Scholar
Sadorsky, P. (2012) Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies. Energy Economics 34, 248255.Google Scholar