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Oil Price Shock and its Impact on the Macroeconomic Variables of Pakistan: A Structural Vector Autoregressive Approach

Author

Listed:
  • Kashif Zaheer Malik

    (Department of Economics, Lahore University of Management Sciences, Lahore, Pakistan,)

  • Haram Ajmal

    (Punjab Resource Management Program, Government of the Punjab, Lahore, Pakistan)

  • Muhammad Umer Zahid

    (Department of Economics, Lahore University of Management, Lahore, Pakistan.)

Abstract

This study examines the dynamic effects of the oil price shocks on the key macroeconomic variables of Pakistan. A Structural Vector Autoregressive model is used on yearly data from 1960 to 2014. The impulse response functions indicate that the oil price shocks depress the real gross domestic product while the real exchange rate also experiences depreciation. However, the long-term interest rate and the inflation rate rise as a result of a positive oil price shock. The unanticipated changes in these macroeconomic variables threaten the economic stability of Pakistan; specifically, higher inflation and interest rates hamper the economy s growth rate. Lastly, the variance decomposition analysis illustrates that the oil price shocks have the most impact on the inflation rate of Pakistan.

Suggested Citation

  • Kashif Zaheer Malik & Haram Ajmal & Muhammad Umer Zahid, 2017. "Oil Price Shock and its Impact on the Macroeconomic Variables of Pakistan: A Structural Vector Autoregressive Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 7(5), pages 83-92.
    • Handle: RePEc:eco:journ2:2017-05-9
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    2. Jibran Hussain & Saeed Siyal & Riaz Ahmad & Qaiser Abbas & Yu Yitian & Liu Jin, 2024. "Impact of Energy Crises on Income Inequality: An Application of Piketty’s Hypothesis to Pakistan," Economies, MDPI, vol. 12(10), pages 1-23, September.
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    More about this item

    Keywords

    SVAR; Oil Price Shocks; Macroeconomic Variable;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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