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Effects of Oil Shocks on Oil-Importing Developing Economies: The Case of Georgia and Armenia

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  • Lamazoshvili Beka

Abstract

We study the impact of oil price fluctuations on oil-importing developing economies focusing on Armenia and Georgia as examples of a small open economy. Our analysis takes into account the underlying sources of the increase in oil prices and the structure of energy flows. Our objective is to understand the role of oil price jumps in the context of endogeneity of oil prices to global economic activity and to identify the key channels of transmission (compared to the developed countries). Using the methodology of Kilian (2009a), we decompose the oil price shocks based on the original source of the increase. We conclude that accounting for underlying reasons for the increase in oil prices in the world energy markets is important for understanding the impact of oil shocks on the small open economies under study. The identified responses of key macroeconomic variables suggest that demand channel may be an important transmission factor. Given the high share of food items in the CPI of the developing economies under study, increased world real activity is likely to translate into increased food prices directly as well as indirectly through higher oil prices. The structure of energy flows and the politics of natural gas matter for the transmission of oil shocks.

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  • Lamazoshvili Beka, 2014. "Effects of Oil Shocks on Oil-Importing Developing Economies: The Case of Georgia and Armenia," EERC Working Paper Series 14/06e, EERC Research Network, Russia and CIS.
    • Handle: RePEc:eer:wpalle:14/06e
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    Cited by:

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    2. Sek, Siok Kun, 2019. "Unveiling the factors of oil versus non-oil sources in affecting the global commodity prices: A combination of threshold and asymmetric modeling approach," Energy, Elsevier, vol. 176(C), pages 272-280.
    3. Alexander Bass, 2019. "Do Oil Shocks Matter for Inflation Rate in Russia: An Empirical Study of Imported Inflation Hypothesis," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 288-294.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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