Macroeconomic impacts of oil price shocks in Asian economies. (November 2015)

• Record Type: Journal Article
• Authors: Cunado, Juncal; Jo, Soojin; Perez de Gracia, Fernando
• Is Part Of: Energy policy. Volume 86(2015)
• Page Start: 867
• Page End: 879
• Publication Date: 2015-11
• Subjects: E32 -- Q43 -- O53; Structural oil shocks -- Macroeconomy -- Sign restrictions -- Asian economies -- SVAR models.; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2015.05.004
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: This paper analyzes the macroeconomic impact of structural oil shocks in four of the top oil-consuming Asian economies, using a VAR model. We identify three different structural oil shocks via sign restrictions: an oil supply shock, an oil demand shock driven by global economic activity and an oil-specific demand shock. The main results suggest that economic activity and prices respond very differently to oil price shocks depending on their types. In particular, an oil supply shock has a limited impact, while a demand shock driven by global economic activity has a significant positive effect in all four Asian countries examined. Our finding also includes that policy tools such as interest rates and exchange rates help mitigating the effects of supply shocks in Japan and Korea; however, they can be more actively used in response to demands shocks. Highlights: We analyze the effects of three structural oil price shocks on Asian economies. Supply shocks have limited impact on the economic activity of Asian economies examined. Demand shocks due to economic activity boosts GDP of all economies. CPIs in India and Indonesia were only marginally affected by oil price shocks. Monetary and exchange rate tools help mitigating supply shocks in Korea and Japan.