The Impact of Oil Price Shocks on Turkish Sovereign Yield Curve

Posted: 22 May 2020

See all articles by Oguzhan Cepni

Oguzhan Cepni

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Selcuk Gul

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; Ho Chi Minh City University of Economics and Finance; Jiangxi University of Finance and Economics

Muhammed Hasan Yilmaz

Government of the Republic of Turkey - Central Bank of the Republic of Turkey; University of St Andrews School of Management

Date Written: April 27, 2020

Abstract

This paper investigates the impact of oil price shocks on the Turkish sovereign yield curve factors. The recent oil shock identification scheme of Ready (2018) is modified by using geopolitical oil price risk index in order to capture the changes in the risk perceptions of oil markets driven by geopolitical tensions such as terrorism, conflicts, and sanctions. The modified identification scheme attributes more power to demand shocks in explaining the variation of the oil price. Furthermore, our findings demonstrate that the various oil price shocks influence the yield curve factors quite differently. A supply shock leads to a statistically significant increase in the level factor. This result shows that elevated oil prices due to supply disruptions are interpreted as a signal of the surge in inflation expectations since the cost channel prevails. Moreover, unanticipated demand shocks have a positive impact on the slope factor as a result of the central bank policy response for offsetting the elevated inflation expectations. Overall, our results provide new insights to understand the driven forces of yield curve movements that are induced by various oil shocks in order to formulate appropriate policy responses.

Keywords: Emerging markets, Local projections, Oil price, Supply and demand shocks, Yield curve factors, Geopolitical oil price risks

JEL Classification: E43, E44, G12, G15, Q43

Suggested Citation

Cepni, Oguzhan and Gul, Selcuk and Lucey, Brian M. and Yilmaz, Muhammed Hasan, The Impact of Oil Price Shocks on Turkish Sovereign Yield Curve (April 27, 2020). Available at SSRN: https://ssrn.com/abstract=3586575 or http://dx.doi.org/10.2139/ssrn.3586575

Oguzhan Cepni (Contact Author)

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

Selcuk Gul

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Turkey

Brian M. Lucey

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Muhammed Hasan Yilmaz

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Istiklal Cad. 10 Ulus
06100 Ankara, Ankara 06050
Turkey

University of St Andrews School of Management ( email )

The Gateway North Haugh
St Andrews, KY16 9RJ
United Kingdom

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