Keywords
oil price
exchange rate
ARDL
Eastern Europe
How to Cite
Abstract
This research examines the impact of oil prices on investment dynamics in Eastern European countries using quarterly data from 2010 to 2023. The main objective is to assess the short-run and long-run effects of oil price fluctuations on investment levels, considering the role of exchange rates and interest rates as additional macroeconomic determinants. The study employs the autoregressive distributed lag (ARDL) model, which allows for the analysis of both immediate and equilibrium relationships between variables. Specifically, a positive long-run impact of oil prices on investment is observed in 10 out of 11 countries. A negative impact is only found in Croatia, while in Slovakia, oil prices do not affect investment. Regarding short-run effects, there is a strong positive correlation between oil price and investment in Slovenia and Latvia, whereas a negative effect is found for 6 countries. It is worth noting that using the real exchange rate instead of the nominal one significantly weakens the relationship between oil prices and investment. Among other findings, investment is positively associated with higher interest rates in 7 countries, while the intuitively expected negative effects are only found in Hungary and Poland. Investment reacts more strongly to the nominal exchange rate compared to the effect of the real exchange rate. Although the long-run impact of the exchange rate is predominantly negative, this does not hold for short-run effects. In particular, our results suggest a significant heterogeneity of exchange rate effects across the studied countries.
References
Abdelsalam, M. A. M. (2023). Oil price fluctuations and economic growth: The case of MENA countries. Review of Economics and Political Science, 8(5), 353-379. https://doi.org/10.1108/REPS-12-2019-0162
Arouri, M. E. H., & Nguyen, D. K. (2010). Oil prices, stock markets and portfolio investment: Evidence from sector analysis in Europe over the last decade. Energy Policy, 38(8), 4528-4539. https://doi.org/10.1016/j.enpol.2010.04.007
Audi, M., Poulin, M., Ahmad, K., & Ali, A. (2025). Quantile analysis of oil price shocks and stock market performance: A European perspective. International Journal of Energy Economics and Policy, 15(2), 624-636. https://doi.org/10.32479/ijeep.18503
Baba, C., & Lee, J. (2022). Second-round effects of oil price shocks – Implications for Europe’s inflation outlook. IMF Working Papers, 2022(173), 1. https://doi.org/10.5089/9798400219351.001
Ben Salem, L., Nouira, R., Saafi, S., & Rault, C. (2024). How do oil prices affect the GDP and its components? New evidence from a time-varying threshold model. Energy Policy, 190, 114162. https://doi.org/10.1016/j.enpol.2024.114162
Blanchard, O., & Galí, J. (2007). The macroeconomic effects of oil price shocks. In J. Gali & M. Getler (Eds.), International Dimensions of Monetary Policy (pp. 373-421). Chicago: Chicago of University Press. https://www.nber.org/system/files/chapters/c0517/c0517.pdf
Bouakez, H., & Vencatachellum, D. (2007). The impact of high oil prices on African economies. https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/27968413-EN-ERWP-93.PDF
Bouri, E. (2015). Oil volatility shocks and the stock markets of oil-importing MENA economies: A tale from the financial crisis. Energy Economics, 51, 590-598. https://doi.org/10.1016/j.eneco.2015.09.002
Cunado, J., Jo, S., & de Gracia, F. P. (2015). Macroeconomic impacts of oil price shocks in Asian economies. Energy Policy, 86, 867-879. https://doi.org/10.1016/j.enpol.2015.05.004
Fan, Y., & Zhu, L. (2010). A real options based model and its application to China’s overseas oil investment decisions. Energy Economics, 32(3), 627-637. https://doi.org/10.1016/j.eneco.2009.08.021
Federal Reserve Economic Data. (2024, September 5). https://fred.stlouisfed.org/
Hamilton, J. D. (2003). What is an oil shock? Journal of Econometrics, 113(2), 363-398. http://dx.doi.org/10.1016/S0304-4076(02)00207-5
Haugom, E., Mydland, Ø., & Pichler, A. (2016). Long-term oil prices. Energy Economics, 58, 84-94. https://doi.org/10.1016/j.eneco.2016.06.014
Henriques, I., & Sadorsky, P. (2011). The effect of oil price volatility on strategic investment. Energy Economics, 33(1), 79-87. https://doi.org/10.1016/j.eneco.2010.09.001
Herwartz, H., & Plödt, M. (2016). The macroeconomic effects of oil price shocks: Evidence from a statistical identification approach. Journal of International Money and Finance, 61, 30-44. https://doi.org/10.1016/j.jimonfin.2015.11.001
James, E. S., & McCardle, K. F. (1999). Options in the real world: Lessons learned in evaluating oil and gas investments. Operations Research, 47(1), 1-15. https://doi.org/10.1287/opre.47.1.1
Jiménez-Rodríguez, R., & Sánchez, M. (2005). Oil price shocks and real GDP growth: Empirical evidence for some OECD countries. Applied Economics, 37(2), 201-228. https://doi.org/10.1080/0003684042000281561
Kilian, L. (2008). The economic effects of energy price shocks. Journal of Economic Literature, 46, 871-909. https://doi.org/10.1257/jel.46.4.871
Kripfganz, S., & Schneider, D. C. (2023). ARDL: Estimating autoregressive distributed lag and equilibrium correction models. The Stata Journal, 23(4), 983-1019. https://doi.org/10.1177/1536867X231212434
Łamasz, B., & Iwaszczuk, N. (2020). Crude oil option market parameters and their impact on the cost of hedging by long strap strategy. International Journal of Energy Economics and Policy, 10(1), 471-480. https://doi.org/10.32479/ijeep.8613
Morana, C. (2017). Macroeconomic and financial effects of oil price shocks: Evidence for the euro area. Economic Modelling, 64, 82-96. https://doi.org/10.1016/j.econmod.2017.03.016
Pesaran, M. H., Shin, Y., & Smith, R. J. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94(446), 621-634. https://doi.org/10.1080/01621459.1999.10474156
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. http://www.jstor.org/stable/2678547
Samawi, G. A., Mdanat, M. F., & Arabiyat, T. S. (2017). The role of energy supply in economic growth: Evidence from the oil importing countries. International Journal of Energy Economics and Policy, 7(6), 193-200. https://econjournals.com/index.php/ijeep/article/view/5357
Shang, Y., Ma, X., Bhatia, M., Alofaysan, H., & Walsh, S. T. (2024). Unveiling the enigma: Exploring how uncertain crude oil prices shape investment expenditure and efficiency in Chinese enterprises. Energy Economics, 132, 107423. https://doi.org/10.1016/j.eneco.2024.107423
Short-Term Energy Outlook. (2024, September 15). U.S. Energy Information Administration. https://www.eia.gov/outlooks/steo/
Sill, K. (2007). The macroeconomics of oil shocks. Federal Reserve Bank of Philadelphia, Business Review, 1(1), 21-31. https://core.ac.uk/download/pdf/6648887.pdf
Van Dinh, D. (2022). Crude oil price fluctuation and economic growth: ARDL model approach. International Journal of Energy Economics and Policy, 12(4), 240-248. https://doi.org/10.32479/ijeep.13177
World Energy Outlook 2023, (2024, September 10). https://iea.blob.core.windows.net/assets/86ede39e-4436-42d7-ba2a-edf61467e070/WorldEnergyOutlook2023.pdf
Zhu, Q., & Singh, G. (2016). The impacts of oil price volatility on strategic investment of oil companies in North America, Asia, and Europe. Pesquisa Operacional, 36(1), 1-21. https://doi.org/10.1590/0101-7438.2016.036.01.0001
Zorgati, M. B. S. (2023). Risk Measure between Exchange Rate and Oil Price during Crises: Evidence from Oil-Importing and Oil-Exporting Countries. Journal of Risk and Financial Management, 16(4), 250. https://doi.org/10.3390/jrfm16040250
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Copyright (c) 2025 Economics and Environment