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Oil Price Shocks and Bank Risk around the World

This paper provides global evidence that oil price shocks have significant impacts on bank risk. Specifically, all three oil shocks, including oil supply shocks, aggregate demand shocks, and oil specific demand shocks, have positive impacts on bank risk. In particular, oil specific demand shocks have different impacts on bank risk in oil-importing versus oil-exporting countries and in normal times versus the financial crisis period. Moreover, we find that interest rate spread could significantly explain the impacts of oil shocks on bank risk for oil-exporting countries during normal times. Our main results remain valid in various robustness tests. This study provides important practical implications for policy makers, banks, and investors around the world.

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Keywords: Bank Risk, Oil Price Shocks, Interest Rate Spread, Financial Crisis

DOI: 10.5547/01956574.43.SI1.yjin

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Published in Volume 43, Special issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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