The Effects Of Oil Prices On Economic Activity

1525 WordsAug 26, 20167 Pages
Recent decline in oil prices has generated a wave of public controversy about the possible consequences for oil exporters. This paper will examine the relationship between oil price dynamics and macroeconomic indicators in oil exporting countries such as Canada, Russia, Norway, Mexico and UK. The hypothesis of oil price effects will be tested by adopting the Vector Autoregression (VAR) framework, which has been widely used to examine the effects of changes in oil price on economic activity in other papers. The main findings of this paper conclude that there is a considerable relationship between oil prices and key macroeconomic indicators in the countries under analysis. The impact of oil prices varies among countries with the biggest and expanding effect in Russia where a direct impact of oil prices on GDP growth, exchange and interest rates is detected. A significant response of GDP on oil price shocks is also detected in Canada and Mexico. As for Norway and UK relationship between real GDP and oil prices is not so significant, however, oil price dynamics has a significant influence on other macroeconomic indicators. 1. Introduction After four years of relative stability, oil prices have fallen sharply in June 2014. Many people have been arguing about the possible sources of the recent decline, whether the low prices will persist, and most importantly the possible impact of oil shocks on commodity exporters. This paper attempts to examine the historical
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