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Handbook of Energy and Environment Policy

Edited By Celil Aydin and Burak Darici

The book deals with the broad perspectives on the energy and environment topics and questions the traditional view on energy and environment policy and issues. Nowadays, energy and environmental issues can be accepted as the related subjects by the whole world. The link between energy and environment is backed to the time when only nature's primary resources were used. Primitive societies’ energy demand was small compared to the forces of the environment. With the emergence of industrial nations, the importance of energy and environment relation appeared again.

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7 The Effect of Oil Prices on Firms’ Performances: The Case of Turkey1

Extract

Vasıf Abioğlu

7   The Effect of Oil Prices on Firms’ Performances: The Case of Turkey1

Introduction

Given the importance of oil as a key input of production, there is a wide literature investigating the effects of oil shocks on macroeconomic and industry aggregates. (Hamilton, 1983, 1988, 1996, 2009; Olson, 1988; Mork 1989, 1994; Bohi, 1989; Rotemberg and Woodford, 1996; Bernanke, Gertler and Watson, 1997; Davis and Haltiwanger, 2001; Lee and Ni, 2002; Barsky and Kilian, 2004; Kilian, 2008; Blanchard, 2009; Gogineni, 2010). These studies have shown that oil price shocks adversely affect the economy through various channels. The most basic channel is the classic supply-side effect in which rising oil prices reduce basic input to production (Barro, 1984, Brown and Yücel, 2002). Consequently, the growth of output and productivity are slowed. The decline in productivity growth lessens real wage growth and increases the unemployment rate at which inflation accelerates. Other channels include income transfers from the oil-importing country to the oil-exporting country, pass-through effect into inflation, a real balance effect and monetary policy, higher interest rates, increased uncertainty during oil crisis, labor resource reallocation that leads to unemployment and output decline. (Dohner, 1981; Hooker, 2000; Mork, 1994; Brown and Yücel, 1999; Pindyck and Rotemberg, 1983; Loungani, 1986). Empirical studies also show that oil prices have a negative impact on stock markets where oil is major input (Jones and Kaul, 1996; Sadorsky, 1999; Nandha and Faff, 2008; Park and Ratti, 2008;...

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