Responses of macroeconomy and stock markets to structural oil price shocks: New evidence from Asian oil refinery

In extensive oil-related literature, less attention has been paid to Asia and particularly little evidence is known for oil-refining countries. This paper examines how the economy of an oil-refining country reacts to an oil price shock and performs cross-country comparisons with oil-exporting and oil-importing countries. Singapore (oil refiner), Japan (oil importer), and Malaysia (oil exporter) are analysed through a structural vector autoregression (SVAR) model using both macroeconomic and financial variables. Results show limited reactions of both macroeconomic indicators and stock returns to an oil supply shock, and an oil aggregate demand shock negatively impacts economic activities. Our findings reveal that the country’s status in the oil market is important when an oil-specific demand shock is analysed. Our findings inform policymakers of the effectiveness of using monetary policy tools such as interest rate and exchange rate to mitigate the adverse effects of an oil price shock.