The role of higher oil prices: A case of major developed countries

Terence O'Neill, Jack H W Penm, Richard Terrell

Research output: Chapter in Book/Report/Conference proceedingChapterResearchpeer-review

72 Citations (Scopus)


The primary aim of this chapter is to examine whether the recent increase in world oil prices has affected inflation expectations and stock market returns in major OECD countries. The key findings are as follows. First, we found no evidence to support the presence of a long term relationship between oil prices and inflation expectations - measured by the difference between yields of inflation indexed and non-inflation indexed government bonds - over the sample between early 2003 and late 2006. Second, higher oil prices are found to lead to expectations of higher inflation. This evidence is stronger over the period where oil prices had been higher and signs of capacity constraints in the economy were emerging. Third, the impact of higher oil prices on stock market returns differs among countries. While higher oil prices are found to adversely affect stock market returns in the United States, the United Kingdom and France, the effects are positive in Canada and Australia as these countries are significant exporters of energy resources.
Original languageEnglish
Title of host publicationResearch in Finance
EditorsA H Chen
Place of PublicationUK
PublisherEmerald Group Publishing Ltd.
Number of pages13
ISBN (Electronic)9781849505499
ISBN (Print)9780762313778
Publication statusPublished - 2008


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