| By: |
Ramón Cobo-Reyes (Department of Economic Theory and Economic History, University of Granada);
Gabriel Pérez Quirós (Bank of Spain) |
| Abstract: |
This paper analyzes the relationship between oil price shocks and the
industrial production and between oil price shocks and the stock returns. The
objective is to study which relationship is stronger or which variables reacts
more rapidly to changes in oil price. We develop a Markov switching model
assuming that there exits a latent variable (the state of the economy) which
determines the mean of industrial production and the volatility of stock
returns. The results show that raises in oil price affects in a negative and
statistically significant way to stock returns and to industrial production,
but the effect on stock returns is stronger than on industrial production. |
| Keywords: |
oil price, Markov switching models. |
| JEL: |
E32 E37 C32 |
| Date: |
2005–08–05 |
| URL: |
http://d.repec.org/n?u=RePEc:gra:wpaper:05/18&r=rmg |