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Impact of oil price fluctuations and volatility on the business cycle of major oil exporting and importing countries


British Academy /Leverhulme Trust


2 years

Value to Coventry University





Leverhulme Trust logo

Project overview

Oil is one of the major contributors to the global GDP (3% in 2021). Considering its importance for economic growth, this research aims to analyse the relationship between oil prices changes (volatility) on the business cycle of major oil exporting and importing countries. The literature has so far modelled the relationship from an importing economy’s perspective.

Similarly, oil price volatility is another aspect with considerably limited coverage. This research using local projection method proposed by Jorda (2005), will analyse the relationship between the underlying variables. This will identify the Granger causality, time-varying elasticities which largely are assumed to be constant, impulse responses without VARs estimation or issues related with the ordering of the variables. This research will contribute to the existing literature and inform the policy makers regarding the:

i) the dynamics of the relationship

ii) magnitude of oil price and volatility changes on the business cycle; and

iii) policy implications.

Project objectives

This research aims to analyse the impact of oil price changes and volatility on the business cycle of major oil-exporting and importing countries and provide an h-period ahead forecast for the sample countries. We aim to show that changes in the business cycle occur due to variations in changes (and volatility) in oil prices; while controlling for:

1) term spread (i.e. yield difference between 10 and 5 years treasury bonds) which is often cited to help predict the business cycle;

2) excess bond premium which measures the variations in the credit supply conditions and;

3) Consumer confidence as a predictor of economic growth. The control variables have been shown by various studies to have a significant impact on the changes in the business cycle.

Impact statement

The implications of the findings of this research project are expected to add to the existing academic knowledge and inform the policy makers with respect to the dynamics of the various associations among market and macroeconomic variables; magnitude of oil price and volatility changes on the business cycles that would impact both oil-exporting and oil-importing economies; and policy implications for the central banks as monetary policy authorities and appropriate ministries as fiscal policy authorities.


We expect initially two conference refereed papers. We are also planning to upload these papers in the Social Sciences Research Network (SSRN) portal in order to increase the academic impact of our research.

Then, we will convert these papers to be publishable in two international high-quality journals.

We will have a workshop in Nigeria as well as a discussion group internally at each applicant's own institution. This way we can prepare a report to discuss the policy recommendations of our findings.

We expect to have at least two published papers from this project. The target conferences outside UK are

i) European Finance Association,

ii) European Financial Management Association,

iii) World Finance Conference.

The UK conference that we are considering is being organised by BAFA.

The target journals are Journal of International Financial Markets, Institutions and Money, Journal of International Money and Finance, Energy Journal and Energy Economics, among other highly reputable journals.

Before we finalise the projects to submit to conferences and journals, we will gather feedback for our initial results via the internal seminar series at Swansea, Coventry and Southampton.

Similarly, we will have some discussions with the Central Bank of Nigeria (CBN) decision makers in order to sharpen the practical implications of our results. We will target CBN audience with growth spectrum (who are typically senior members of staff and directors) to provide some seminars as well as capacity building for training and workshops.

We have also another dimension regarding our links with the Nigerian authorities. Additional to the monetary side via CBN, we will also have networking opportunities with the Ministry of Finance for the fiscal side of our research. All of these communications and interactions will help to come up with a strong research impact with important implications. All of these interactions will be in person by visiting Nigeria.

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