The Impact of Oil Price Shocks on Macroeconomic Activity: Searching Evidence from Oil Exporting and Importing Countries using Unstructured Vector Autoregressive (VAR) Model

In the new global economy, oil price shocks have become a central issue for many economists. Very sharp oil price increases cause a slowdown in economic growth. However, it can be argued that, various countries tend to respond to oil price shock differently, especially on whether they are importers or exporters of oil. In this study, an unstructured VAR model is considered to examine the effects of positive oil price shocks on five macroeconomic variables on two oil-importing and two oil-exporting countries. Denmark and Norway are used to represent oil-exporting countries, while Japan and Belgium stand for oil importing countries. The general result found is that oil-exporting countries tend to benefit from positive oil price shocks, with stock market and GDP consistently rising with every shock. However, it was further found that the rise tends to be accompanied by mild inflation and increasing interest rate for the concerned countries. On the other hand, it was found that oil-importing countries are either not affected by oil price shocks or lose out, as GDP and stock market show negative responses to oil price shock for the concerned countries. These Results from the VAR estimate were statistically significant.