The Effect of Asymmetrical Relationship of Oil Price Shocks on Gross Domestic Product

Zalina Zalina Zainal (), Mukhriz Izraf Azman Aziz () and Mohd Faisol Md. Salleh ()
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Zalina Zalina Zainal: School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.
Mukhriz Izraf Azman Aziz: School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.
Mohd Faisol Md. Salleh: School of Economics, Finance and Banking Universiti Utara Malaysia 06010 UUM Sintok, Kedah MALAYSIA.

Jurnal Ekonomi Malaysia, 2021, vol. 55, issue 2, 121-135

Abstract: This paper revisits the asymmetrical crude oil prices-Gross Domestic Product (GDP) relationship for Malaysia and Indonesia using Hansen (2000) Threshold regression method. The empirical analysis uses quarterly data for the period of 1990 (quarter 1) until 2018 (quarter 1). The paper confirms the nonlinearities in the oil price-GDP relationship for Malaysia and Indonesia. The findings reveal that when oil prices are below USD37, oil price shocks have a negative impact on Malaysian GDP, but positively affect GDP when oil price are between USD37 to USD55. Indonesia’s GDP, on the other hand, responds favourably to changes in oil prices when they are below USD47, but negatively affects GDP when oil price exceeds USD47. Both countries’ GDP responses to oil price shocks are linked to the issues such as the degree of oil dependency, oil self-sufficiency, and government efficiency in managing revenue from the oil sector and the ease with which critical policy adjustments take place.

Keywords: Crude oil price; GDP; asymmetric; nonlinear; threshold value (search for similar items in EconPapers)
JEL-codes: B27 C24 C32 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ukm:jlekon:v:55:y:2021:i:2:p:121-135

DOI: 10.17576/JEM-2021-5502-10

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