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Revisiting the Dynamics Effects of Oil Price Shocks on Small Developing Economies

Imran Hussain Shah, Carlos Díaz () and Yuan Wang
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Yuan Wang: University of Southampton

No 65/17, Department of Economics Working Papers from University of Bath, Department of Economics

Abstract: This paper examines the dynamic effects of oil price, aggregate demand and aggregate supply shocks on output and inflation in four small developing economies using a structural VAR model. For all countries, despite finding the expected response of output to oil price shocks, an upward causal effect of oil price innovations on the domestic price level is established which adversely accompanies the growth stimulating effects in oil-exporting countries. This paper also finds asymmetric effects of oil price changes on macroeconomic variables in all sample countries. Finally, our empirical results find two further things: firstly, that for Malaysia, Pakistan and Thailand, nominal demand and supply shocks are the main sources of fluctuations in inflation and output respectively, whereas for Indonesia the converse holds and secondly that whilst the 1998 recession was largely induced by only supply and demand shocks the recession of 2008-09 could potentially be explained by oil price changes.

New Economics Papers: this item is included in nep-ene and nep-mac
Date: 2017-03-17
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Working Paper: Revisiting the Dynamic Effects of Oil Price Shock on Small Developing Economies (2012) Downloads
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