Oil Price Shocks in Major Emerging Economies

As the world economic power shifts from the advanced G7 countries—Canada,France, Germany, Italy, Japan, the United Kingdom, and the United States—to the seven largest emerging market countries (EM7)—Brazil, China, India, Indonesia,Mexico, Russia, and Turkey—the vulnerability of these emerging market countries to exogenous shocks is becoming of growing importance. This paper presents a comprehensive examination of the effects of oil price shocks on real economic activity in the EM7 economies in the context of two classes of empirical models.In general, we find that oil price uncertainty has statistically significant effects on the real output of the EM7 economies and that the relationship between oil prices and economic activity is in general symmetric. We also find that oil price uncertainty has in general a negative effect on world crude oil production.