Macroeconomic implications of oil price shocks to emerging economies: a Markov regime-switching approach

Sophio Togonidze and Evžen Kočenda

No 4.009, FFA Working Papers from Prague University of Economics and Business

Abstract: We investigate an impact of oil-price shocks on GDP and exchange rate dynamics in resource-heterogeneous economies. We employ a Markov regime-switching version of a vector autoregressive (VAR) model to allow for regime shifts, non-linear effects and timevarying parameters of the VAR process. Empirically we use quarterly data series in oil exporting, metal-exporting, and less-resource-intensive economies. On average, real GDP in oil-exporting economies exhibits substantial contraction, while for metal exporters there is a significant real GDP expansion suggesting an offsetting effect of metal exports on oil imports. We find that currency appreciation state is more persistent in oil- and metal exporting economies while less-resource-intensive economies remain longer in a currency depreciation state. Further evidence suggests existence of the counteracting forces such as foreign exchange interventions by authorities in oil-exporting economies. It also emerges that currency appreciation in oil-exporting economies is driven largely by economic performance rather than oil price movement.

JEL-codes: C11 C22 C58 E32 E37 F31 F44 Q43 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2022-05-03, Revised 2022-09-06
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Working Paper: Macroeconomic Implications of Oil-Price Shocks to Emerging Economies: A Markov Regime-Switching Approach (2022)
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