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Article
Publication date: 16 June 2022

Dejan Živkov and Jasmina Đurašković

This paper aims to investigate how oil price uncertainty affects real gross domestic product (GDP) and industrial production in eight Central and Eastern European countries (CEEC).

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Abstract

Purpose

This paper aims to investigate how oil price uncertainty affects real gross domestic product (GDP) and industrial production in eight Central and Eastern European countries (CEEC).

Design/methodology/approach

In the research process, the authors use the Bayesian method of inference for the two applied methodologies – Markov switching generalized autoregressive conditional heteroscedasticity (GARCH) model and quantile regression.

Findings

The results clearly indicate that oil price uncertainty has a low effect on output in moderate market conditions in the selected countries. On the other hand, in the phases of contraction and expansion, which are portrayed by the tail quantiles, the authors find negative and positive Bayesian quantile parameters, which are relatively high in magnitude. This implies that in periods of deep economic crises, an increase in the oil price uncertainty reduces output, amplifying in this way recession pressures in the economy. Contrary, when the economy is in expansion, oil price uncertainty has no influence on the output. The probable reason lies in the fact that the negative effect of oil volatility is not strong enough in the expansion phase to overpower all other positive developments which characterize a growing economy. Also, evidence suggests that increased oil uncertainty has a more negative effect on industrial production than on real GDP, whereas industrial share in GDP plays an important role in how strong some CEECs are impacted by oil uncertainty.

Originality/value

This paper is the first one that investigates the spillover effect from oil uncertainty to output in CEEC.

Details

Applied Economic Analysis, vol. 31 no. 91
Type: Research Article
ISSN: 2632-7627

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Article
Publication date: 14 February 2022

Dejan Živkov, Marina Gajić-Glamočlija and Jasmina Đurašković

This paper researches a bidirectional volatility transmission effect between stocks and exchange rate markets in the six East European and Eurasian countries.

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Abstract

Purpose

This paper researches a bidirectional volatility transmission effect between stocks and exchange rate markets in the six East European and Eurasian countries.

Design/methodology/approach

Research process involves creation of transitory and permanent volatilities via optimal component generalized autoregressive heteroscedasticity (CGARCH) model, while these volatilities are subsequently embedded in Markov switching model.

Findings

This study’s results indicate that bidirectional volatility transmission exists between the markets in the selected countries, whereas the effect from exchange rate to stocks is stronger than the other way around in both short-term and long-term. In particular, the authors find that long-term spillover effect from exchange rate to stocks is stronger than the short-term counterpart in all countries, which could suggest that flow-oriented model better explains the nexus between the markets than portfolio-balance approach. On the other hand, short-term volatility transfer from stock to exchange rate is stronger than its long-term equivalent.

Practical implications

This suggests that portfolio-balance theory also has a role in explaining the transmission effect from stock to exchange rate market, but a decisive fact is from which direction spillover effect is observed.

Originality/value

This paper is the first one that analyses the volatility nexus between stocks and exchange rate in short and long term in the four East European and two Eurasian countries.

Details

International Journal of Emerging Markets, vol. 18 no. 11
Type: Research Article
ISSN: 1746-8809

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