Oil Price Shocks and Yield Curve Dynamics in Emerging Markets

Oguzhan Cepni*, Rangan Gupta, Cenk C. Karahan, Brian Lucey

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


In a local projections framework, we study the impact of oil price shocks, based on a refined approach to disentangle oil price movements, on the dynamics of the entire yield curve in nineteen emerging economies with different positions on the oil market. Responses of the term structure factors to oil market shocks are shown to differ conditional on not only the underlying sources that drive oil price, but also based on the oil-dependence of these economies. In particular, we find that oil price risk shocks put upward pressure on the level, slope, and curvature of interest rates across the board. Supply-driven shocks in oil markets cause a rise in the level of interest rates in oil-importing economies more significantly, yet the downward impact on yield curve slope is more pronounced in oil-exporting countries. Demand-driven shocks have a significant and persistent upward impact on level factors in oil-importing countries. Furthermore, the effect of precautionary demand shocks on the curvature factor is more pronounced in oil-importing countries vis-à-vis oil-exporters. Significance, direction, and duration of our results may guide monetary policymakers in emerging countries as well as international investors in portfolio and hedging decisions.
Original languageEnglish
JournalInternational Review of Economics and Finance
Pages (from-to)613-623
Number of pages11
Publication statusPublished - Jul 2022


  • Emerging markets
  • Local projections
  • Oil price
  • Supply and demand shocks
  • Yield curve factors

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